Types of Audit

Secretarial Audit

An audit is not always necessarily about accounting and financial records. An audit actually means a close examination or review of anything – a process, records, efficiency etc. A secretarial audit is a process to review a company’s compliance with the law and its rules and regulations. Let us learn more.

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Secretarial Audit

A Secretarial Audit is a mechanism to check the compliance of an organization to the laws, rules, regulations, notifications etc prevalent at the time of the audit. In this case, it is to check if a company has been complying with the provisions of the Companies Act 2013 and all of its rule therein.

The rules and regulations around companies are very complex and ever increasing. The responsibilities of the directors, promoters and other managerial positions are also very complicated and crucial. So it is important that a Practicing Company Secretary (PCS) be hired to conduct a secretarial audit.

Secretarial Audit

PCS will ensure that all proper compliance mechanism and systems are in order. He ensures that all the legal and procedural requirements of the law and regulations are being met with. If he finds any fault he can point out to the management and they can rectify their mistakes. So as you can imagine, secretarial audit is a continuous process.

Secretarial Audit as per Companies Act

Section 2014 (1) of the Act deals with the provisions regarding Secretarial Audit. As per the act, the audit is compulsory for the following companies,

  1. Every listed company
  2. Public company with paid-up capital greater than 50 crores
  3. Public company with turnover greater than 250 crores
  4. Any private company who is a subsidiary of a public company which falls under the above two categories

The act also states that only a practicing Company Secretary who is a member of the Institute of  Company Secretaries of India (ICSI) has authorization to carry out a statutory secretarial audit of these companies.

Learn more about Statutory Audit here in detail.

Scope of the Secretarial Audit

So a Company Secretary (member of the ICSI) is appointed as a secretarial auditor usually at the beginning of the financial year. This appointment is by the board members via a board resolution.

He will then submit a report of his audit to the same board. It is preferable to submit a report quarterly, so the company can stay on top of the compliance requirements.

Now when the auditor submits his report, he has to review the compliance of five specific laws. This is the scope of his audit. The five laws are as follows,

  1. Companies Act 2013
  2. Securities Contracts (Regulation) Act, 1956
  3. Depositories Act 1956
  4. FEMA 1999
  5. Rules and Regulations under the SEBI Act

Other than this the auditor will also check the company’s compliance with,

  1. The Secretarial Standards which the ICSI issues from time to time
  2. The Listing Agreement of the company with the appropriate stock exchange

Solved Question for You

Q: Why is a secretarial audit necessary?

Ans: There are many laws, rules, regulations, statutes etc that govern the functioning of a company. It is necessary to have a secretarial auditor and manage the compliance with such laws for

  • protection of the shareholder’s interests
  • avoid any legal action against the company
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