Introduction:
In today’s complex business environment, ensuring compliance with legal and regulatory requirements is of utmost importance. Secretarial audit is a crucial tool that helps organizations maintain good corporate governance practices and adhere to applicable laws and regulations. In this blog, we will delve into the concept of secretarial audit and explore its applicability to various entities.
What is Secretarial Audit?
Secretarial audit can be defined as an independent and objective evaluation of a company’s compliance with the provisions of various laws, rules, regulations, and guidelines. It aims to ensure that a company complies with the legal and procedural requirements set forth by regulatory authorities such as the Companies Act, Securities and Exchange Board of India (SEBI), and other applicable laws.
Applicability of Secretarial Audit:
The Companies Act, 2013 mandates secretarial audit for certain categories of companies. Let’s explore the applicability of secretarial audit based on the criteria set by the Act:
- Listed Companies: Secretarial audit is mandatory for all companies listed on stock exchanges in India. Listed companies are required to engage a practicing company secretary to conduct a secretarial audit and provide a report to the board of directors.
- Public Companies: Public companies with a paid-up share capital of ₹50 crore or more are required to undergo a secretarial audit. This provision ensures that companies with a significant capital base maintain compliance with legal and regulatory requirements.
- Companies with Outstanding Loans: Companies that have outstanding loans or borrowings exceeding ₹100 crore are obligated to conduct a secretarial audit. This requirement applies irrespective of whether the loan is from financial institutions, banks, or public deposits.
- Companies under Regulatory Authorities: Certain companies are regulated by specific authorities such as SEBI, Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA), etc. These entities are required to undergo secretarial audit as per the applicable regulations.
Benefits of Secretarial Audit:
- Legal Compliance: Secretarial audit ensures that companies comply with relevant laws, rules, and regulations, thereby reducing the risk of non-compliance penalties, legal disputes, and reputational damage.
- Enhanced Corporate Governance: Secretarial audit promotes transparency, accountability, and good corporate governance practices within an organization. It helps in identifying gaps or deficiencies in compliance procedures and assists in implementing necessary corrective measures.
- Risk Mitigation: By identifying areas of non-compliance or potential risks, secretarial audit enables companies to take proactive steps to mitigate those risks. It helps in reducing the likelihood of fraud, unauthorized activities, or regulatory violations.
- Stakeholder Confidence: Secretarial audit reports provide assurance to stakeholders, including shareholders, investors, lenders, and regulators, about the company’s adherence to legal and regulatory requirements. It enhances their confidence in the company’s operations and governance practices.
Conclusion:
Secretarial audit plays a crucial role in promoting good corporate governance, ensuring legal compliance, and minimizing risks for organizations. By conducting a systematic evaluation of a company’s compliance procedures and practices, it helps companies maintain transparency, accountability, and trustworthiness in their operations. It is essential for companies falling under the ambit of mandatory secretarial audit to ensure timely compliance with the legal requirements. By doing so, they can build a strong foundation for sustained growth, stakeholder confidence, and long-term success.
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Frequently Asked Questions (FAQs)
Q.What is the objective of a secretarial audit?
The primary objective of a secretarial audit is to assess a company’s compliance with legal and regulatory requirements and ensure adherence to good corporate governance practices.
Q.Who can conduct a secretarial audit?
A secretarial audit can only be conducted by a practicing company secretary who holds a certificate of practice issued by the Institute of Company Secretaries of India (ICSI).
Q.Is secretarial audit mandatory for all companies?
No, secretarial audit is mandatory only for specific categories of companies as prescribed by the Companies Act, 2013, such as listed companies, public companies with a certain capital threshold, and companies with outstanding loans exceeding a specified limit.
Q.What are the consequences of non-compliance with secretarial audit requirements?
Failure to comply with the secretarial audit requirements can result in penalties, legal liabilities, and reputational damage for the company and its directors. Non-compliance can also impact the company’s ability to raise funds or attract investors.
Q.How often should a secretarial audit be conducted?
Secretarial audit is an annual requirement. It must be conducted once in every financial year and the audit report should be submitted to the board of directors within the prescribed timeline.
Q.What is covered in a secretarial audit?
A secretarial audit covers various aspects, including compliance with company law provisions, board meetings and resolutions, maintenance of statutory registers and records, adherence to SEBI regulations (for listed companies), contracts and agreements, related-party transactions, and other relevant legal and regulatory requirements.
Q.Can a company conduct a voluntary secretarial audit?
While certain companies are mandated to undergo secretarial audit, any company can opt to conduct a voluntary secretarial audit to ensure compliance, enhance corporate governance practices, and mitigate risks.
Q.Can the secretarial audit report be shared with stakeholders?
The secretarial audit report is primarily meant for the board of directors. However, listed companies are required to disclose the audit report in their annual reports, making it accessible to shareholders and other stakeholders.
Q.Can a secretarial audit help in identifying potential fraud or irregularities?
Yes, secretarial audit can play a vital role in identifying potential fraud, irregularities, or non-compliance with legal and regulatory requirements. It helps in detecting gaps in internal controls and procedures, enabling timely corrective actions.
Q.Are there any exemptions from secretarial audit?
Certain small companies, one-person companies, and dormant companies may be exempted from the requirement of secretarial audit. However, it is advisable to consult with a professional to determine the specific applicability and exemptions for each company.
