Secretarial Audit Services

An Overview of Secretarial Audit

A Secretarial Audit is an independent verification process that evaluates a company’s compliance with the Companies Act, 2013, and other applicable corporate, securities, and economic laws. Conducted by a Company Secretary in Practice (PCS), the audit ensures that the company adheres to good corporate governance practices and statutory obligations.

Unlike financial audits, secretarial audits emphasize legal and procedural compliance. They help identify potential risks of non-compliance, protect directors from penalties, and reassure stakeholders about the company’s governance standards.

The audit culminates in a Secretarial Audit Report (Form MR-3), which is submitted to the Board of Directors and annexed to the company’s Board Report filed with the Registrar of Companies (RoC).

Eligibility Criteria

Secretarial audit is mandatory for certain classes of companies under Section 204 of the Companies Act, 2013:

• Listed Companies: Every listed company is required to undergo the audit.
• Public Companies: Paid-up share capital of ₹50 crore or more, OR Turnover of ₹250 crore or more.
• Subsidiaries: Every private company that is a subsidiary of a public company meeting the above thresholds.
• Voluntary Audit: Companies not falling under mandatory criteria may opt for it to enhance credibility.
• Auditor Qualification: Must be conducted strictly by an independent Company Secretary in Practice (PCS).

Types of Secretarial Audit

• Statutory Secretarial Audit: Mandatory under Section 204 for applicable companies.
• Internal/Voluntary Secretarial Audit: Conducted to strengthen governance for non-mandated entities.
• Event-Based Audit: Conducted for specific triggers like mergers, acquisitions, IPOs, or buy-backs.
• Sector-Specific Audit: Tailored for regulated industries like Banking, Insurance, and Telecom.
• Governance Audit: A comprehensive review covering SEBI, FEMA, labor, and environmental laws.

Advantages of Secretarial Audit

• Legal Compliance: Reduces risks of penalties and disqualification of directors.
• Governance Strength: Demonstrates commitment to transparency and ethical business practices.
• Risk Detection: Identifies potential non-compliance and legal lapses at an early stage.
• Investor Confidence: Reassures stakeholders about the robust governance framework.
• Reputational Boost: Enhances the brand image through a strong compliance record.
• Strategic Support: Insights assist in mergers, acquisitions, and restructuring decisions.

Requirements for Secretarial Audit

• Board Appointment: PCS must be appointed via a formal Board Resolution.
• Broad Scope: Covers Companies Act, SEBI, FEMA, Labor, and Environmental laws.
• Form MR-3: Mandatory reporting format for the Secretarial Audit Report.
• Annexation: The report must be attached to the Board’s Report filed with the RoC.
• Auditor Independence: The auditor must not have any financial interest or employment in the company.

Documents Required

Key Compliance Records:

• Memorandum & Articles of Association (MoA & AoA).
• Statutory registers (Members, Directors, Charges, Contracts).
• Minutes of Board, Committee, and General Meetings (AGM/EGM).
• SEBI filings and Annual Returns.
• Compliance certificates and Licenses/Permits under various laws.
• Policies on Insider Trading, Whistleblowing, and Ethics.
• Shareholding patterns and Related Party Transaction documents.

Secretarial Audit Process

• Appointment & Planning: PCS appointment and scoping applicable laws.
• Information Collection: Comprehensive review of registers, returns, and filings.
• Verification & Testing: Examining adherence to Companies Act, SEBI, and FEMA.
• Drafting & Discussion: Preparing observations and discussing with management for clarification.
• Final Report: Submission of Form MR-3 with final opinions and remarks.
• Filing: Annexing the report to the Board’s Report for RoC disclosure.

Industry Applications

• Listed Entities: Ensuring compliance with SEBI LODR and insider trading norms.
• Banking & NBFCs: Adherence to RBI guidelines and corporate governance.
• Manufacturing & Pharma: Focus on labor laws and environmental regulations.
• IT & E-commerce: Data protection and FEMA compliance for cross-border trades.
• MNCs: Assessment of transactions under transfer pricing and FEMA rules.

Frequently Asked Questions