SECRETARIAL AUDIT

Presentation By: Team 7

Apoorva
Keshav
Pawan
Shefali
Vranda
MEANING OF SECRETARIAL
AUDIT
The Secretarial Audit is mechanism that ensures :
• Timely and orderly compliance with the various legal
and procedural requirements
• Corrective measures when non compliance is
discovered/reported
It is a legal compliance system that facilitates to ensure
compliance and avoid risk associated with non
compliance.
 Applicability
Section 204 of the Companies Act, 2013
Rule 9 of the Companies (Appointment and Remuneration of
REQUIREMENTS Managerial Personnel) Rules, 2014
1. Applicable to all listed companies &
2. Following class of companies:
a) every public company having a paid-up share capital of Rs.
50 Crores or more; or
b) every public company having a turnover of Rs. 250 Crores
or more

Eligibility for Appointment

A Company Secretary in Practice is eligible to be
appointed as Secretarial Auditor.

Purpose of Appointment
• Ensuring procedural compliance
• Specifically Statutory Disclosures
• Safety net for investors
• Provides comfort to government, regulators, Board
about good conduct of affairs of the Company
Why Secretarial Audit?
Benefits of Secretarial Audit
Leads to good corporate governance

Helps in mitigating non compliance risk

Ensures transparency in all business transactions

Protects Interest of all stakeholders

Ensures Compliance with all applicable laws

 Limits for Audit by ICSI
No. of years as member Number of
of ICSI as on 1st April of Secretarial
each Financial Year Audit
Reports
Upto & equal to 5 years 5
More than 5 years but less 10
than or equal to 10 years

More than 10 years 20

 Process of Appointment of SECRETARIAL AUDITOR

Board Step 3
Check the Meeting CS in employment Call, convene and
Balance hold a valid Board Meeting and
Sheet STEP 3
proposes the motion for passing
STEP 1 resolution for Auditor Appointment.

Step 1
When CS in employment
becomes aware of the fact that
company falls under the criteria of
conducting Secretarial Audit, he
inform Management about the ROCLAPTOP
same. Intimation
Step 4
STEP
STEP 4 4
Search for CS in employment shall File
Auditor MGT 14 as per section
Step 2
179(3) as earliest as
CS in employment arranges for STEP 2 possible within 30 days of
the practicing Company
Passing resolution and
Secretary to conduct Audit
intimation to Auditor.
(make the research on Limits
and take consent).
 Some Important Aspects
The Report (MR- 3) is always addressed to
Recipient of members of the company. However, the report is
an annexure to the board report. Therefore,
the Report qualifications, if any, have to be explained by the
board in its report.

Secretarial
Auditor There is no prescribed end of term for the
secretarial auditor. Therefore, ideally the
Tenure of
(related to Appointment
secretarial auditor will lay down his office on
submission of his report or other approach is the
period for which MGT 14 is filed.
Appointment)

The law is silent, therefore removal can be done by

Removal/ Board after giving reasonable opportunity of being
heard in the Members.
Resignation of However he may resign after giving his resignation
from the same addressed to the Board.
Auditor
Before Meeting Client (Strategic Planning)
 Secretarial Audit Way Forward

• (PAGE 40 OF RISHIKESH PPT)

 INSIGHTS OF AUDIT TERMINOLOGY

• Shareholding • Public/Right/Prefere • Checklist and

Scope Of Audit

Corporate Action And

Compliance

Bulding Audit Structure

structure ntial issue of shares Timelines
• Management / debentures/sweat • Action
structure equity. • Management
• Board quality • Redemption / buy- Representation
• Related party back of securities letter
transactions • Merger / • Drafting the Report
• Applicable Laws amalgamation / and Clarification
reconstruction or • Finalization and
any other submission of
restructuring. Report
• Foreign technical
collaborations
 COMPLIANCE CHECK HEADS

COMPANIES ACT, 2013 Specific Act (as applicable to

Secretarial Standards Company due to its specific
CSR Policy business activity
NRC Policy TRAI
Risk Management Policy IRDA
LABOUR LAW
RERA

SEBI Regulations Any Other Act or

LODR Regulation
FEMA
PIT
Chit Fund
SAST Competition Act
 Key Documents Required

• Notice/ Agenda/ Minutes

• Financials and Correspondence
Compliance
• Statutory Registers
• Declaration and Disclosures
• Share Transfer Documents
• Contract of Borrowings made or
granted and its Compliance
• Filings and Related Documents
• Approvals
• Proof of Payment of Penalty
Secretarial Companies Act, 2013 Website SEBI (LODR)
Standards Disclosures (r. 46)
Period of Notice and Constitution of Board Shareholding R. 7(3), Compliance Report for the
Agenda of Board, (Proper Balance of Pattern (quarterly) Share Transfer by RTA on half
other Committee Executive and non- yearly basis within 30 days.
Meetings and General executive Directors)
Meeting
Format of Notice Disclosure of interest in Corporate R. 13(3), Investor Complaints on
First Board meeting and Governance Report quarterly basis within 21 days.
any change thereon (quarterly)

Consent (if shorter Quorum and Voting Quarterly Results R. 29 &47, Advance Notice of Board
Notice) Process adopted/ Meeting
Scrutinizer Report
Minutes Prepared in Loans, advances and Scrutinizer Report R. 33, Outcome of Board Meeting
prescribed manner Deposit
Related Party Annual Report R. 31(1)(b), Shareholding Pattern
Transactions on quarterly basis within 21 Days.

If any Corporate Action Notice with Agenda R. 40(9) & (10), Compliance Report
has taken place, then its items and Certificate, on half yearly basis
reporting explanatory notes within 30 Days.
 Examination of Statutory
Compliance of Laws
• The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder:
Regulation 55A quarterly report of Shares Transfer by Listed and Unlisted Public Companies.

• Foreign Exchange Management Act, 1999 and the rules & regulations made thereunder to
the extent of Foreign Direct Investment, Overseas Direct Investment & External Commercial
Borrowings.
 Compliances of Specified SEBI
Regulations
• (a) Substantial Acquisition of Shares and Takeovers Regulations, 2011;
• (b) Prohibition of Insider Trading Regulations, 1992;
• (c) Issue of Capital and Disclosure Requirements Regulations, 2009;
• (d) Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999;
• (e) Issue and Listing of Debt Securities Regulations, 2008;
• (f) Registrars to an Issue and Share Transfer Agents Regulations, 1993
regarding the Companies Act and dealing with client;
• (g) Delisting of Equity Shares Regulations, 2009; and
• (h) Buyback of Securities Regulations, 1998;
Changes Made for Listed Entity through SEBI LODR
Revised/ New Applicability Applicability
Particular Existing
Concept for 2019 for 2020
Form MR–3 : Important Concepts
 Reporting of Observations & finding

• Auditor to report para wise specific:

• Observations
• Qualifications
• Reservation
• Adverse Remarks

• In respect of applicable laws & Board structure, system & processes for compliances management
• Auditor may provide details of Audit Findings as annexure to the Report

State qualifications and observations in Bold type or in Italics.

• Auditor may also report his inability to express opinion on any particular matter with reasoning
• Auditor may also report his limitations on account of restrictive scope of Audit provided by the Co
• Non availability of material information limiting expression of opinion by auditor to be reported.
Amendments in the Reporting in SEBI (LODR)

Annual Secretarial Compliance Secretarial Audit Report

report (Section 204 with R. 24A)
(R. 24A newly inserted in feb, 2019) As per Section 204 of the Companies Act, 2013,
It require the PCS to check the compliance of all Secretarial Audit conducted by the PCS for
applicable SEBI Regulations and circulars/ Listed Company and its material unlisted
guidelines issued thereunder on the Listed Companies, unlisted Public Company, in the
Entity. MR-3.
For checking the SEBI compliances, PCS will Covers the Broad Checklist.
have a fixed time frame of 60 Days. Annexed with the Annual Report.
The material unlisted subsidiary of the listed
entities will not be required to annex the ASC
report in their annual report considering the fact
that SEBI laws are not applicable on these
subsidiaries.
 Post Auditing Compliances
• Signing of Secretarial Audit Report: On or Before the date of
signing of Board’s report.
• Placing: Secretarial Audit report is to be placed before the
Board meeting convened for approval of Board’s report. This
will facilitate Board to offer their comments on Audit
observations and qualifications if any
• Circulation- Secretarial Audit Report is required to be annexed
to Board’s report and will be circulated to all stakeholders and
auditors.
• Filing- The same will be filed as a part of attachments to Form
AOC-4 (Form for filing financial statements)
 REPORTING BENEFICIARY
Secretarial Audit helps the investors Companies that imbibe business and personal
in taking informed investment ethics and an effective compliance
decision, as it evaluates the company management programme within their work
in terms of compliance and
governance norms being followed by
Public Management
culture often enjoy employee and customer
loyalty and public respect for their brand,
the company. which can translate into better market
capitalization and shareholder returns.

It is an effective due diligence exercise for

the prospective investors or joint venture
partners. Further Financial Institutions,
Banks, Creditors and Consumers can
Promoters Shareholder measure the law abiding nature of company
management.
Secretarial Audit assures the
promoters of a company that those
incharge of its management are
conducting its affairs in accordance
with the requirements of laws and the
owners‟ stake is not being exposed
to unintended risk.
Regulators It also facilitates reducing the burden of the
regulators in ensuring compliances and
they can take timely actions against the
offenders.
 POWERS and RIGHTS of Secretarial Auditor

Section 143 of the Companies Act, 2013 deals with Obtain

powers, rights and duties of Auditors. Sub-section To access
Books of Information
(14) of the section provides that the provisions of Accounts and
this section shall mutatis mutandis apply to the Explanation
Company Secretary in Practice conducting
Secretarial Audit under section 204. To Form
Loans And Opinion on
Advances the True
Verification and Fair
View

To Obtain
Information To visit
about Non Branch
Financial Office
Transactions
 DUTIES OF SECRETARIAL AUDITOR

• FRAUD REPORTING
• As per Section 143 (12) and 143 (14) of the
Companies Act, 2013
• Wherever Secretarial Auditor has reason to
believe that an offence involving fraud is being
committed or has been committed against the
Company by its officers/ employees, Duty is
casted upon the Secretarial Auditor to report
fraud
• The manner of reporting is prescribed under
Rule 13 of the Companies (Audit and Auditors)
Rules, 2014.
 Procedure to Report Fraud
• Report of fraud to be forwarded to Board/ Audit Committee immediately after knowledge of
To Board
fraud, seeking their reply or observations within 45 days

• On receipt of reply/ observations, the auditor shall forward his report & reply/ observations
received along with his comments on the same to Central Government within 15 days of
Reply to
Report receipt of such reply/ observations.

• In case where no reply/ observations are received within 45 days, the report is to be sent
to Central Government in Form ADT-4 along with note containing the details of his report
Forwarding
to CG sent to Board/ Audit Committee for which no reply/ observations were received.

• The report shall be sent to the Secretary, MCA by Registered Post with AD or by Speed
Forwarding post followed by an e-mail in confirmation.
to Authorities
 PENAL PROVISIONS

Section 204 Section 451 Section 448 Section 447 Companies

• Fine One Lakh to 5 • Punishment for • False Statement • Punishment for Secretaries Act,
lakh Rupees. repeated default – (return, report, fraud 1980
twice the amount certificate, financial • Imprisonment for • Schedule 1
of fine and statement, 6month to 10
imprisonment, as prospectus, years.(public • Schedule 2
the Officer may statement) interest 3 years
deem fit. • Liable Under minimum)
Section 447 • Fine - actual
amount of fraud to
three times of
amount of fraud.
 PENAL PROVISION
The Company Secretaries Act, 1980

Professional
Misconduct

First Schedule Second Schedule

Removal of Name from

Fine
Register of Members
Reprimand 1. Upto 1 Lakh Rupees
1. Upto 3 Months
2. Upto 5 Lakh Rupees
2. Permanent Removal
Skills required for conducting Secretarial Audit
Knowledge
1. exact nature and activities of the
Company- about the laws which are
applicable to the Company.
2. existence of compliance system,
Board process & procedures,
selection and evaluation process for
the Board.
Adherence to Timelines
Schedule set to conduct the audit
process should be strictly adhered to in
order to gain the confidence of the client
and boost the expertise level of the
team.
Team
1. Appropriately trained staff- who can
support the preparation of the report.
2. Team should be informed of the
basic audit requirements and ethics.
Related legislative and administrative
updates should be shared and
communicated with the team.
Honesty and impartiality
A Company Secretary in Practice has
the professional duty to provide an
unbiased and objective view. Company
Secretary in Practice should be
independent from the company being
audited.
Documentation & Back-up
1. He is expected to develop a manual
& checklists which will help in
evaluation process.
2. He is required to keep proper
records of documents and checklists
filed during the course of audit.
Maintain Audit Diary
The Audit exercise needs to be
planned and executed professionally
and verifications done by the team
members should be recorded daily.
Such maintenance of diary would help
in keeping audit trail that would come
in handy to ensure the quality of audit.
 CHALLENGES AND SOLUTIONS
1. As Individual we cannot be aware of every Development of Industry specific Guidance Notes
Industry Specific Laws, as India has Thousands for Auditing.
of Laws.

2. No Provision Regarding Appointment/ removal Appointment/ removal/ vacancy to be in line with

of Secretarial Auditor in the Companies Act, 2013 statutory auditor provisions, Deployment of a
specific Form could be an appeal to the Ministry.

3. Company Personnel Do not provide the Take a Management Representation letter.

Information as asked.

4. Ever Changing Laws Keep yourself updated, read more and learn more

SUCCESS
Industry does not mind Cost of Compliance but
you have to give Value Addition.

THANK YOU!