Secretarial Audit is a strategic mechanism that requires an independent examination of compliance requirements under various laws and processes, rules & regulations under Companies Act and other laws. It helps ensure timely corrective measures when non-compliance is detected.
Audit process and Audit documentation makes the basis of auditing in Secretarial Audit to help CS Professionals in auditing process. Audit documentation may defines as the documentation of procedures that auditors performed, the audit evidence that they obtained and the conclusion that makes by them based on the evidence obtained. It needs a process which is known as Auditing process.
Periodicity of Secretarial Audit
The Prescient Secretarial Audit continually would help the company in commencing corrective measures and strengthening its compliance mechanism and processes. Consequently, the Secretarial Audit should be carried out-
- Half-year and,
In case of any adverse finding, it is reported on an interim basis to the Board immediately. The Secretarial Audit Report to be annexed with the Board’s report is required to be submitted before the preparation of the Board’s Report.
SCOPE OF SECRETARIAL AUDIT
- A secretarial auditor has to check compliances by the company under the following laws and rules made there-under.
- The Companies Act, 2013 (the Act) and the rules made there-under.
- The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there-under.
- The Depositories Act, 1996 and the Regulations and Bye-laws framed there-under.
- Foreign Exchange Management Act, 1999 and the rules and regulations made there-under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings.
The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
- The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
- The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.
- The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
- The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
- The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008.
- The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client.
- The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 and
- The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998.
- Secretarial Standards issued by The Institute of Company Secretaries of India.
- The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable.
- Other laws as may be applicable specifically to the company.
POWER TO SECRETARIAL AUDITOR
The Companies Act, 2013 has empowered secretarial auditor and has given him all rights and powers as given to statutory auditor. As per section 204 of the Companies Act, 2013, the secretarial auditor company shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.
Benefits of a Secretarial Audit
The Benefits of Secretarial Audit are as follows:-
- It can be an effectual due diligence performance for the prospective acquirer of a company or possessing interest or a partner of a Joint venture.
- It indemnifies the owners that the management and affairs of the company are being conducted following the requirements of law and that the owner’s stake is not being exposed to undue risk.
- It administers professional discipline and self-regulation.
- Reduces the work pressure of the regulators due to better and timely compliances.
- It shows the right path to investors by showcasing your legal records.
Frauds and Penalties associated with penalty for False Statements
Section 448 of Companies Act 2013, deals with the penalty for false statements. The section provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—
- Which is false in any material particulars, knowing it to be false; or
- Which omits any material fact, knowing it to be material, he shall be liable under section 447.
Section 447 deals with Punishment for Fraud
It provides that any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which-In Terms Of Section 448, a PCS is liable to attract penal provision if, he makes statement in the Secretarial Audit Report which is false is any material particulars, knowing it be false or omits any material fact knowing it to be material.
Qus:-Who can sign the Secretarial Audit Report?
- The Secretarial Audit Report should be signed by the Secretarial Auditor who has conducted the Secretarial Audit.
- In case if the audit is conducted by the firm of Company Secretaries, then by the partner under whose governance the Audit was conducted.
Also, while signing the Secretarial Audit Report, Company Secretary in Practice should ensure that he holds the valid certificate of practice number.
Qus:-What skills are required for conducting the Secretarial Audit process?
- Documentation and Backup
- Reliance upon management representation
- Complying to the timelines
- Impartial Behavior
- Maintaining the Audit records
Qus:-What is the difference between Statutory Audit Vs Secretarial Audit?
- Statutory audit is conducted by CA and secretarial audit is conducted by CS
- Statutory audit is based on the financial statements whereas secretarial audit deals with various areas of compliances of Acts such as SEBI Act, Companies act, RBI etc.
- Statutory auditor reports to the members of the company whereas secretarial auditor reports to the Management.
Qus:-What is the procedure of secretarial audit for public company?
Understand the applicability of a secretarial audit with regard to a public company, you need to consider the Companies Act of 2013 which allowed all private organizations to be chaired by one individual. The companies that are listed within the format were directed on having one-third of the Board to be acting independently.
As per the secretarial audit firm, well it provides the necessary comfort to the management staff along with regulators and stakeholders regarding being compliant with the law and existence of proper systems and processes.
A secretarial audit is not applicable to the private firms other than those that are subsidiary of a public organization. Its presence can be exercised on the large firms as being mentioned in Section 204(1) of the Companies Act. According to the rule 9 of the constitution page, every listed, as well as public companies having a turnover amount of two hundred fifty crores, shall seize all Board reports provided they are formed under sub-section 3 of section 134.