Any organization needs regulatory compliance and effective corporate governance today in our country. Companies must adhere to all pertinent regulations and laws and ethical and environmental guidelines. One of these ways is via Secretarial Audit.
This article provides background on Secretarial audit in India, its legal framework, main areas dealt with, advantages & recommendations for conducting an Audit.
Secretarial Audit – What is It?
A Secretarial Audit verifies whether a business adheres to all applicable regulations and laws in addition to its internal policies. It’s performed by a practicing company secretary and creates a report on the compliance condition of the business. The Secretarial Audit makes certain the company satisfies all regulatory and legal requirements and also encourages good corporate governance.
Secretarial Audit Legal Framework In India
The legal framework for Secretarial Audits in India is provided under Section 204 of the Companies Act, 2013 and Rule nine of the Companies (Remuneration and Appointment of Managerial Staff) Rules, 2014. According to these regulations:
- Every listed company & businesses having paid-up share capital of Rs. Fifty crore or more, or a turnover Rs. 250 crores or even more must undergo an annual Secretarial Audit.
- SEBI requires Secretarial Audits for all Listed Companies.
- Extra requirements for yearly Secretarial Audits specified by Reserve Bank of India (RBI) for banks and non banking financial companies.
- A Company secretary of training having a certificate of training given by the Institute of company Secretaries of India has to conduct the audit and also make a report. This report evaluates the company’s compliance with laws along with its internal compliance and governance methods.
Secretarial Audit Applicability.
Secretarial Audits are needed for:
- Listed companies.
- Companies having paid-up share capital of at least Rs. 50 crore or even more.
- Companies having turnover of more than Rs. 250 crores.
- Not mandatory for smaller companies, a Secretarial Audit is recommended for good governance practices. Small and medium enterprises also can benefit from regular Secretarial Audits to validate the operation of their internal compliance & governance systems.
Key Areas Covered by Secretarial Audit
The Secretarial Audit deals with all regulatory compliances, including:
- Companies Act Compliance: Verifies compliance with every aspect of the Companies Act, 2013 (filings, board meetings, shareholder dealings, dividends etc.
- Regulations of Securities and Exchange Board of India: Meets SEBI rules on disclosure and insider trading along with other securities laws.
- Depository Act Compliance: Examines compliance with regulations governing electronic handling and storage of securities.
- Compliance With Foreign Exchange Management Act: Checks compliance with FEMA concerning foreign exchange market management and foreign investment in India.
- Environmental Regulations: Assesses compliance with environmental laws impacting company operations.
Benefits of Secretarial Audit
The advantages associated with a Secretarial Audit go beyond compliance. They include:
- Improved Credibility: Regular audits encourage trust among shareholders, regulators and financial markets.
- Risk Mitigation: Determine non-compliance issues and possible risks earlier to avoid legal sanctions or reputational damage.
- Operational Improvement: Provides insight into the company’s governance practices and ideas for improvements.
- Gives Due Diligence: Contains information regarding mergers, acquisitions and partnerships.
Guidelines for an Effective Secretarial Audit
To conduct a Secretarial Audit effectively, follow these guidelines:
- Planning & Scope: Define the scope of the audit (and all regulatory areas being covered).
- Use of Technology: Use software along with other technological resources to do an audit with efficiency and accuracy.
- Documentation: Keep comprehensive records of compliance checks and issues identified.
- Independence of Auditors: Make sure the auditors aren’t connected to company management.
- Regular Updates: Follow changes in legislation and also modify the audit scope.
Secretarial Audit Challenges
Despite its significance, the Secretarial Audit process has several challenges:
Complex Regulations:
Continuous changes and also the intricacy of laws make complete compliance challenging.
Resource Intensive:
Requires lots of expertise and time, which might be tough for smaller companies.
Lack of Awareness:
A lot of companies, particularly SMEs don’t completely comprehend the need and advantages associated with a Secretarial Audit.
Future of Secretarial Audit in India
As corporate governance standards develop and regulatory frameworks become more strict, Secretarial Audit will probably be vital. With growing attention on transparency and accountability, more companies might adopt such audits beyond the mandatory requirements.
Conclusion
The Secretarial Audit is essential to enforce corporate compliance and governance in the complicated regulatory environment. By implementing this procedure, companies meet legal requirements in addition to operational efficiencies and market reputation. Secretarial Audits will presumably become more significant as businesses develop along with a component of corporate governance in India.
FAQs
What is a secretarial audit?
A Secretarial audit verifies that an organization adheres to the laws, regulations, rules, notifications etc in force at time of the audit. Here, it checks that a business has been complying with the Companies Act 2013 and all of its principles therein.
What is the limit for secretarial audit?
Every general public Company having a revenue of two hundred fifty crore rupees or more shall annex to its Board’s Report produced under sub-section (3) of section 134, a Secretarial Audit Report in such form that could be recommended by a company Secretary in training.
What penalty applies to secretarial audit?
Section 204 (4) further provides that a Company Secretary in Practice who breaches the provisions of Section 204 will be punished not less than one lakh rupees but not more than 5 lakh rupees.
What is the fee for the secretarial audit?
The secretarial auditor may charge no minimum fees to the Institute of Company Secretaries of India. Fees charged by the secretarial audit ought to be proportionate to the nature and scale of the client company or labor involved in the inspection.
Which companies need a secretarial audit?
The Indian law requires each listed company & any public business having a paid up share capital of 50 crores or more or a revenue of 250 crores or more to undertake a secretarial audit under Section 204 of the Companies Act, 2013.
Who appoints a secretarial auditor?
Appointment by the Board of Directors Rule 8 of the Companies (Meetings of Board and Powers) Rules 2014. However, the appointment will be confirmed by the Company at its General Meeting as well.
