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Secretarial Audit: Meaning and Introduction

Rachna Sharma 
on 13 May 2015

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In this series of articles, we will take account of Secretarial Audit, a newer concept in the field of Companies Act. There have been numerous discussions on this topic in the past. Keeping rest to all the previous discussions, I am coming up with a series of articles, which will not only help the students to understand this topic, but I hope, it will guide the new Company Secretaries in understanding their roles in the corporate world, and will also help them in carrying out secretarial audits.

Meaning of Secretarial Audit

Before understanding Secretarial Audit, let me remind the students and my fellow professionals about the meaning of the term, ‘audit’. Audit in the corporate world’s methodology refers to periodic examination of the records of the company by an independent third person. Such independent third person must be a professional, in order to conduct the audit fairly. Financial Audit and Tax Audit are very common for businesses, and Chartered Accountants have been conducting these audits since eternity.

Secretarial Audit, on the other hand, is a comprehensive review of all the laws, statutes, and legislations applicable on a company, keeping the emphasis on the Companies Act, 2013. A company has to comply with a number of rules and regulations, based on its area of operations. Being the statutory watchdog of the corporate world, it has always been the duty of the Company Secretary to make sure that all the laws and rules are being followed by the management. However, the Secretarial Audit will now work as a tool, which will help the Company Secretary to take account of all the non-compliances in a company, and to take preventive actions to avoid any kinds of frauds and errors in the organization, whilst following the rules.

There is no doubt that Secretarial Audit will ensure better following of the rules. Since the objective of the profession is to promote corporate governance, this step will mark a new beginning in companies following the rules and regulations. The internal systems of the companies will improve, and so will the overall effectiveness of the legal compliance system.

Applicability of the Audit

The Secretarial Audit shall be applicable on:

a) Every Listed Public Company

b) Every Public Company having paid-up capital of Rs 50 crores or more.

c) Every Public Company having turnover of more than Rs 250 crores during the financial year.

d) Every Private Company, which is a subsidiary of public company, and falls in the above prescribed category of companies.

Secretarial Auditor Qualifications

Only a member of the Institute of Company Secretaries of India, in full-time practice could conduct the secretarial audit.

Appointment Procedure of a Secretarial Auditor

Any company which falls in the prescribed category must appoint the secretarial auditor by means of a board resolution, and such resolution should be filed with the ROC in e-form MGT-14, within 30 days of such appointment.

As a professional, I would always suggest that a PCS should get the letter of appointment from the company. There must be formal acceptance of the appointment letter in order to avoid any kinds of issues in the future. Any change in the secretarial auditor must be reported to the members via Board’s Report.

Let us put a rest to the first article here. I hope everybody got a little bit of idea about the topic. In the next article we will understand the scope, powers, and penalties for default, as decided in case of Secretarial Audit. As I have underlined earlier, my objective is to make sure that students understand the concept well, as well as towards the end of the series of articles, I am able to demonstrate the most important factors to be kept in mind whilst carrying out secretarial audit.

Regards
CS Rachna Sharma


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