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SECRETARIAL AUDIT REPORT AND ANNUAL SECRETARIAL COMPLIANCE AUDIT REPORT- Applicability, Amendments, Procedure, Documents, And FAQs

Secretarial Audit

A Secretarial Audit is a part of total compliance management in an organization. It is a compelling instrument for corporate consistency among the executives, which assists with recognizing resistance and taking restorative measures.

Applicability

(1) For the purposes of sub-section (1) of section 204, the other class of companies shall be as under-

(a) Every public company having a paid-up share capital of fifty crore rupees or more; or

(b) Every public company having a turnover of two hundred fifty crore rupees or more; 1[or]

(c) Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

Secretarial Audit Report And Annual Secretarial Compliance Audit Report

(2) The format of the Secretarial Audit Report shall be in Form No. MR.3.

Explanation: For the purposes of this sub-rule, it is hereby clarified that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

Latest Amendments in Secretarial Audit

On 8th of February, 2019 Securities Exchange Board of India passed the circular inserting Regulation 24A of The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 stating:

Regulation 24A: Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed with effect from the year ended March 31, 2019.”

Annual secretarial compliance report: The listed entities shall additionally, on an annual basis, require a check by the Practicing Company Secretaries on compliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunder, consequent to which, the Practicing Company Secretaries shall submit a report to the listed entity in the manner specified in this circular with effect from the financial year ended March 31, 2019 onwards. The annual secretarial compliance report shall be submitted by the listed entity to the stock exchanges within 60 days of the end of the financial year. The listed entities and their material subsidiaries shall provide all such documents/information as may be sought by the Practicing Company Secretaries for the purpose of providing a certification under the Regulations and this circular.

EFFECT OF THIS AMENDMENT: With the recent changes in Secretarial audit it was mandatory that the listed entities and the Private Company which is a subsidiary of Listed Public Company along with Annual report shall annex Secretarial Audit Report along with Annual secretarial compliance report (if applicable) given by Practicing Company Secretaries from 31st march, 2019 (which means that Listed entities have to submit 2 audited report given by Practicing Company Secretaries).

  • Pursuant to a notification dated 3rd January, 2020 by Ministry of Corporate Affairs, the Central Government made the following rules further to amend the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following clause was inserted in Rule 9 of the said rules, namely:-
  • Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

Explanation: It was clarified that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be, existing on the last date of latest audited financial statement shall be taken into account.

EFFECT OF THIS AMENDMENT: Earlier, the scope of secretarial audit was restricted to listed and certain unlisted companies, but with the aforesaid amendment the scope of Practicing Company Secretaries and secretarial audit has increased significantly covering certain private companies as well complying with the aforesaid limit.

 

Secretarial Audit helps the organizations from various perspectives

  • It helps in discovery of resistance and empowers restorative activities.
  • It reviews the utilization of beneficial corporate practices.
  • It adds esteem and further develops Company tasks.
  • It works with a precise, trained methodology for assessment and improvement in hazard the executives, controlling and administration

Features of Secretarial Audit

  • This type of review guarantees that the organization is doing the necessities according to the Companies Act, 2013.
  • It advances great practices among the individuals from the organization.
  • As it is done by gathering of people, it advances autonomy all through the association.
  • Via doing appropriate techniques identified with this type of review, the organization can oversee and deal with various types of dangers.
  • Overseeing hazards is one of the fundamental goals of an organization. This can be handily completed by having a framework identified with secretarial review.

Provisions related to Secretarial Audit

  • Consistence Requirements identified with the organization.
  • Any type of adaptability in the consistence authentication of the organization.
  • Investigation of the organization archives and records.
  • Timetable for completing secretarial review.
  • Arrangement of reviewers for completing this type of review.

Advantages of Carrying out Secretarial Audit

  • It would be useful in doing due steadiness, for a forthcoming purchaser in a private securing exchange.
  • It would give some type of reimbursement to the administration and investors of the organization.
  • Consenting to the law guarantees that legitimate norms identified with review are trailed by the organization.
  • Lessens the measure of hazard which an association takes.
  • It helps in saving various types of lawful records for the organization.

Procedure for Carrying out Secretarial Audit

The following procedure has to be utilised for carrying out secretarial audit in India:

Appointment of Company Secretary

Under Rule 8 of the Companies (Meetings of the Board) Rules 2014, the organization is needed to lead an executive gathering and pass the goal identified with arrangement of a secretary examiner.

Formal Communication regarding this

The appointment of the secretary auditor is supposed to be formally communicated to the individual carrying out the audit. This would be formally carried out by receiving a letter of engagement from the company.

 

Signing the Letter of Engagement

When the evaluator is designated, the letter of commitment must be endorsed to guarantee that obligations and duties are completed in execution of review capacities.

Preparing Working Papers Report

This step would include any reports related to secretarial audit which is carried by a company. Such summary related to secretarial audit would be carried out by the individual appointed as a secretarial auditor.

Submission of Audit Report

In the last advance, the report must be submitted as per the prerequisites of the Companies Act, 2013. When doing the accommodation of the report, an exhaustive examination must be completed by a secretarial inspector. With this investigation some type of comments identified with the report should be given. Such comments must be made in the actual report. As the review is done by a free gathering, the report should be fair. This report should be as an assessment.

Not Providing Opinion

If the work carried out by the auditor is hampered and not able to perform functions due to limitations imposed by the company, then such limitations must be highlighted in the report related to secretary audit. A remark has to be made that carrying out the compliance in restricted areas cannot be performed. If such opinion or remarks are present in the report, then the Board of Directors must provide an explanation of the same.

Documents Required for Carrying out Secretarial Audit in India

The following documents are required for carrying out secretarial audit in India:

  • Documents related to the company such as the charter documents and other information as applicable
  • Board Documents such as minutes of the board meeting and the resolutions which are considered in the meeting.
  • Financial Statements of the company and audited reports of the company
  • All information related to listing of the company. This would include important documents related to listing of the company
  • Information on the Annual Performance Reports, Lease Deed, Bonds and returns
  • Filings with RBI (If there is a foreign investment) and other statutory departments
  • All labour law registered as maintained which is prescribed under respective laws.
  • Admission and Statement for code of conduct received from the directors
  • Remuneration and Sitting fees details paid to directors.
  • Particulars of CSR amount
  • SAST Disclosures (Substantial Acquisition of Shares)
  • Bank account details for dividend
  • Details of ECB (External Commercial Borrowings) Returns, in case of foreign borrowings in the company.

Documents are required for Secretarial Audit?

Below-mentioned documents are required for Secretarial Audit-

  • Charter Documents and Statutory Registers,
  • Board and General Meeting Minutes & Notices,
  • Audited financial statements and Last year Secretarial Audit Report,
  • If the company is listed, Filings & Intimations with ROC, Stock Exchanges, Newspaper Advertisements.
  • Annual Performance Reports, Lease Deed, Bonds and returns
  • Filings with RBI (If there is a foreign investment) and other statutory departments,
  • Registers maintained under Labour Laws
  • Admission and Statement for code of conduct received from the directors
  • Remuneration and Sitting fees details paid to directors.
  • Particulars of CSR amount
  • SAST Disclosures
  • Bank account details for dividend
  • Details of ECB Returns, in case of foreign borrowings in the company.

FAQs on Secretarial Audit

1. How is the Secretarial Auditor appointed?

According to Rule 8 of the Companies (Meetings of Board and its forces) Rules, 2014, Secretarial Auditor is needed to be designated through resolution passed at a properly gathered Board meeting. It is fitting for Secretarial Auditor to get the letter of commitment from the organization. Secretarial Auditor ought to officially acknowledge the letter of commitment.

2. Whether communication to earlier incumbent is required ?

Indeed, at whatever point a Practicing Company Secretary is selected as Secretarial Auditor instead of the current Secretarial Auditor, he/she ought to convey the arrangement to the prior officeholder recorded as a hard copy, taking into account the arrangements of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980 and the relevant pronounced decisions.

3. Is Secretarial Auditor required to get the notice of Annual General Meeting in which his report is to be laid before the members?

Para 1.2.1 of Secretarial Standard on General Meetings requires that the notice in writing of every Meeting shall be given to every Member of the company. Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified persons.

4. Is the Secretarial Auditor required to obtain a Letter of Representation from the Auditee company?

It is firmly exhorted that the Company Secretary in Practice acquire an administration portrayal letter from the auditee company. The letter might be endorsed by senior administration (Company Secretary/Managing Director/Senior Management) who might regularly have position to give something very similar. Suggested format of the management representation letter is included in the publication” Guidance Note on Secretarial Audit.” The organization might be changed, contingent upon the conditions and realities overseeing each review. The Secretarial Auditor can utilize this letter of portrayal as a feature of his review proof.

5. Whether financial laws need to be examined while conducting secretarial audit?

In case of financial laws like tax laws and Customs Act etc., Secretarial Auditor may rely on the Reports given by Statutory Auditors or other designated professionals.

6. What are events & actions required to be reported by the Secretarial Auditor in the audit report?

A 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.

Disclaimer: The Article is based on the Relevant Provisions and as per the information existing at the time of the preparation. In no event I shall be liable for any direct and indirect result from this Article. This is only a knowledge sharing initiative.

The authpr can also be reached at contacthhpro@gmail.com


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Category Audit, Other Articles by - DEEPAK SETH 



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