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Secretarial Audit facilitates monitoring compliances with the requirements of law through a formal compliance management programme which can produce positive results to the stakeholders of a company
Promoters Secretarial Audit assures the promoters of a company that those incharge of its management are conducting its affairs in accordance with the requirements of laws and the owners‟ stake is not being exposed to unintended risk.
Non-executive/Independent directors Secretarial Audit provides comfort to the Non-executive/Independent Directors that appropriate mechanisms and processes are in place to ensure compliance with laws applicable to the company, thus mitigating any risk from a regulatory or governance perspective.
Government authorities/regulators It also facilitates reducing the burden of the regulators in ensuring compliances and they can take timely actions against the offenders.
Investors Secretarial Audit helps the investors in taking informed investment decision, as it evaluates the company in terms of compliance and governance norms being followed by the company.
Other Stakeholders It is an effective due diligence exercise for the prospective investors or joint venture partners. Further Financial Institutions, Banks, Creditors and Consumers can measure the law abiding nature of company management.
Benefits to the company itself
As per section 204 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, following companies are required to obtain 'Secretarial Audit Report' form independent practicing company secretary;
o Every public company having a paid-up share capital of Fifty Crore rupees or more; or
Every public company having a turnover of Two Hundred Fifty Crore rupees or more.
“Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]
Secretarial Audit is also mandatory to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies
A share Certificate is a document issued by company evidencing that the person named in the certificate is owner of number shares of Company as specified in the Certificate.
Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the Company.
In case of Allotment: With in a period of 2 (Two) Month from the date of allotment of shares.
As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting and resolution for appointment shall be filed with Registrar of Companies within 30 days in E-form MGT-14.
It is advisable for Secretarial Auditor to get the letter of engagement from the company. Secretarial Auditor should formally accept the letter of engagement. Further, as a prudent corporate practice, it is advisable that change in the Secretarial Auditor during the year is reported to the members in the Board’s Report.
The Institute of Company Secretaries of India has issued guidance for the scope of Secretarial Audit under Companies Act, 2013. As per the guidance, compliance with respect to the following major Acts – fall under the scope of a secretarial audit:
Securities Contracts Act
Foreign Exchange Management Act
Securities and Exchanges Board of India Act
In addition to the above, the Company Secretary would also verify compliance of the Company with respect to other laws as may be applicable specifically to the company.
Some of the main areas verified in a secretarial audit are
increase in authorised, issued and paid-up share capital;
appointment and cessation of office of directors;
appointment of Key Managerial Personnel;
information filed with the ROC for change in promoters and shareholders;
issuance of share certificates;
loans, guarantee or security provided to Directors and other related parties;
acceptance of deposits, if any;
registration and modification of charges, if any;
remittance of security deposits collected from employees;
payment of dividends;
review of board meetings conducted;
review of statutory register maintained by the company;
compliance with FEMA regulations;
Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the company. [Section 204(1) of Companies Act, 2013]
As per section 204(1) of Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following companies are required to obtain Secretarial Audit Report: - Every listed company; - Every public company having a paid-up share capital of fifty crore rupees or more; or - Every public company having a turnover of two hundred fifty crore rupees or more. “Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year. [Section 2(91)]
Pursuant to the provisions of section 204 of the Companies Act 2013, every listed company and company belonging to class of companies as prescribed is required to annex with its Board‟s report, a Secretarial Audit Report given by a Company Secretary in Practice. Companies which are not covered under section 204 may obtain Secretarial Audit Report voluntarily as it provides an independent assurance of the compliances in the company.
Proactive Secretarial Audit on a continuous basis would help the company in initiating corrective measures and strengthening its compliance mechanism and processes. It is therefore, advisable that the Secretarial Audit is carried out periodically (quarterly / half year / annually) and adverse finding if any, is reported on interim basis to the Board immediately. The Secretarial Audit Report to be annexed with Board‟s report is required to be submitted before the preparation of Board‟s Report.
Secretarial Audit Report is required to be provided in the format prescribed in Form MR-3. (Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014).
Secretarial Auditor is required to report and provide details of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to above referred laws/ rules & regulations. Few events were also given as example in the format of audit report.
There is no minimum fees prescribed by ICSI for conducting Secretarial Audit by Company Secretary in practice. However, it would be in the fitness of things that Company Secretary in practice takes proper call about fees considering the nature & size of the company, type of company and the efforts required to be put in while carrying out Secretarial Audit. It is expected that member should maintain high standard and quality in audit process.
As of now, ICSI has not placed any restrictions on number of audits that can be conducted by a Company Secretary in Practice in one financial year.
The Secretarial Audit Report should be signed by the Secretarial Auditor who has been engaged by the company to conduct the Secretarial Audit and in case of a firm of Company Secretaries, by the partner under whose supervision the Secretarial Audit was conducted. While conducting and signing Secretarial Audit Report, Company Secretary in Practice should ensure that he holds the valid certificate of practice number.