What is a Secretarial Audit?

A secretarial audit is a process wherein a qualified company secretary (CS) audits a company’s records, books, and documents to ensure compliance with the relevant statutory laws and regulations. The audit covers various aspects of corporate governance, compliance with laws like the Companies Act, 2013, securities laws, and other legal provisions relevant to the business.
The outcome of the audit is a Secretarial Audit Report, which serves as evidence of the company’s adherence to legal and regulatory standards. This audit is mandatory for certain categories of companies under the Companies Act, 2013, but it is a best practice for all companies to undergo it to ensure transparency and legal compliance.

Why is Secretarial Audit Important in India?
 

1.    Legal Compliance:
o    A secretarial audit ensures that your company is fully compliant with the provisions of the Companies Act, 2013, and other applicable laws, such as the Securities and Exchange Board of India (SEBI) regulations. It helps in identifying any non-compliance issues that might lead to penalties or legal disputes.
2.    Enhancing Corporate Governance:
o    Conducting a secretarial audit fosters transparency and accountability in a company’s operations. It ensures that the management follows the best corporate governance practices and that shareholders' interests are protected.
3.    Risk Mitigation:
o    A secretarial audit helps companies identify potential legal or regulatory risks and implement corrective actions before they escalate into bigger issues.
4.    Improved Credibility:
o    Companies that undergo regular secretarial audits and maintain compliance are perceived as trustworthy by investors, lenders, and other stakeholders, enhancing the company’s credibility.
5.    Investor Confidence:
o    A clean secretarial audit report reassures investors and regulatory authorities that the company operates within legal boundaries, making it easier to attract funding or make public offerings.

Legal Requirements for Secretarial Audit in India

According to the Companies Act, 2013, a secretarial audit is mandatory for the following types of companies:
1.    Listed Companies:
o    All listed companies are required to conduct a secretarial audit to ensure compliance with the laws governing their operations.
2.    Public Companies with Paid-up Share Capital of Rs. 50 Crores or More:
o    Any public company with a paid-up share capital of Rs. 50 crores or more needs to conduct a secretarial audit.
3.    Other Classes of Companies:
o    The Ministry of Corporate Affairs (MCA) may prescribe other classes of companies for conducting a secretarial audit based on their size, complexity, and nature of operations.
The secretarial auditor must be a company secretary in practice who is authorized to perform audits for businesses in India.

Process of Secretarial Audit in India

The process of conducting a secretarial audit involves several critical steps to ensure thorough compliance checks. Here’s how the process generally works:
1. Appointment of a Secretarial Auditor
•    A qualified company secretary in practice is appointed to carry out the audit. This individual will have expertise in the Companies Act, 2013, SEBI regulations, corporate governance norms, and other legal requirements.
2. Collection of Relevant Documents
•    The secretarial auditor collects documents and records related to the company’s operations, including:
o    Board resolutions and minutes of meetings.
o    Shareholder records and dividend declarations.
o    Contracts, agreements, and statutory filings.
o    Corporate filings with the Registrar of Companies (RoC), SEBI, and other regulatory bodies.
3. Verification of Legal Compliance
•    The auditor verifies the company's compliance with various laws and regulations, such as:
o    Companies Act, 2013.
o    SEBI (Listing Obligations and Disclosure Requirements).
o    Foreign Exchange Management Act (FEMA).
o    Taxation Laws.
o    Labour Laws and more.
4. Review of Corporate Governance
•    The auditor checks if the company adheres to corporate governance norms such as the composition of the board, appointment of directors, board meetings, and shareholder rights.
5. Preparation of the Secretarial Audit Report
•    After reviewing the company’s records, the auditor prepares the Secretarial Audit Report. This report provides detailed findings of the audit, including compliance issues, deviations, corrective actions, and recommendations.
6. Submission to the Board of Directors
•    The Secretarial Audit Report is presented to the Board of Directors for review. The board is responsible for taking appropriate actions based on the audit findings.
7. Filing with the Registrar of Companies
•    The Secretarial Audit Report must be filed with the Registrar of Companies (RoC) in accordance with the regulations. The company must ensure that the findings are reflected in its annual report and financial statements. 

Key Benefits of Secretarial Audit

1.    Enhanced Compliance Culture:
o    A secretarial audit fosters a culture of legal and regulatory compliance within the company, ensuring that all processes and activities align with statutory requirements.
2.    Identification of Gaps:
o    The audit helps identify gaps or non-compliance in corporate procedures, which can be rectified to prevent future legal or operational issues.
3.    Boosts Corporate Reputation:
o    Companies that consistently adhere to legal norms and undergo secretarial audits are seen as reliable, transparent, and trustworthy in the eyes of investors, partners, and regulators.
4.    Avoidance of Penalties:
o    The audit helps the company identify potential violations and correct them before they result in penalties or legal sanctions.
5.    Improved Decision-Making:
o    The findings from the secretarial audit provide management with insights into the company’s legal standing, allowing for better decision-making.

Secretarial Audit Report: Key Components

A Secretarial Audit Report typically includes the following sections:
1.    Introduction:
o    Details about the company, its registration, and the scope of the audit.
2.    Compliance with Laws:
o    A list of applicable laws and regulations, and the auditor’s findings on the company’s compliance.
3.    Corporate Governance:
o    Review of the company’s adherence to corporate governance principles.
4.    Audit Observations:
o    Identification of any non-compliance issues, deviations, and areas of improvement.
5.    Recommendations:
o    Suggestions to improve compliance, governance, or other operational areas.
6.    Conclusion:
o    Final remarks on the company’s overall compliance status.

Conclusion
A secretarial audit is a critical process for businesses in India to ensure legal compliance and avoid potential liabilities. By conducting regular secretarial audits, companies can ensure their operations align with corporate governance standards and regulatory requirements, which boosts credibility and investor confidence.
If your company is due for a secretarial audit or you need assistance with preparing for one, contact our expert team. We provide comprehensive secretarial audit services that ensure your company remains compliant with all statutory laws and regulations.

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