A secretarial audit is a critical process for companies to ensure compliance with applicable laws and regulations. It helps improve internal controls, reduce risk of fraud, and promote transparency. Vakilsearch can assist in the process.
In today’s highly competitive business landscape, companies must remain vigilant and compliant to meet their regulatory obligations. One such obligation is to undergo a secretarial audit, which is becoming increasingly vital for companies. A secretarial audit is an independent assessment of a company’s compliance with legal and regulatory requirements that are specific to its industry. It is conducted by a company secretary who examines the company’s books and records to ensure that they are accurate and up-to-date. In this blog, we will delve into the importance of secretarial audit for companies, its objectives, process, and benefits.
Objectives of Secretarial Audit
The primary objective for Importance of Secretarial Audit is to ensure that a company complies with the applicable laws, regulations, and guidelines. The secretarial auditor verifies the company’s compliance with various laws such as the Companies Act, 2013, Securities and Exchange Board of India (SEBI) regulations, and other legal requirements.
The secondary objective of secretarial audit is to identify any gaps or discrepancies in the company’s processes and procedures. The audit helps the company to improve its internal controls and processes, thereby reducing the risk of fraud and errors.
Importance of Secretarial Audit – Process
The Importance of Secretarial Audit process involves the following steps:
- Planning and Scoping: The first step is to plan and scope the audit. The company secretary identifies the areas to be audited and prepares a checklist of the applicable laws, regulations, and guidelines.
- Conducting the Audit: The company secretary then conducts the audit, which involves reviewing the company’s books and records, interviewing key personnel, and examining the company’s processes and procedures.
- Preparing the Report: After completing the audit, the company secretary prepares a report that identifies any non-compliance issues, gaps or discrepancies in the company’s processes and procedures.
- Providing Recommendations: The report also provides recommendations on how the company can improve its internal controls and processes to reduce the risk of fraud and errors.
Benefits of Secretarial Audit
- Compliance With Laws and Regulations: The most significant benefit of secretarial audit is that it ensures compliance with laws and regulations. The audit helps companies to identify and address any non-compliance issues, thereby avoiding legal and financial penalties.
- Improved Internal Controls: Secretarial audit helps companies to improve their internal controls and processes. The audit identifies gaps and discrepancies in the company’s processes and procedures and provides recommendations on how to improve them.
- Increased Transparency: Secretarial audit promotes transparency by ensuring that the company’s books and records are accurate and up-to-date. This, in turn, increases investor confidence and enhances the company’s reputation.
- Reduced Risk of Fraud and Errors: Secretarial audit helps companies to reduce the risk of fraud and errors. By improving their internal controls and processes, companies can prevent fraudulent activities and errors from occurring.
- Better Decision-Making: Secretarial audit provides valuable insights into a company’s operations, which can help management to make better decisions. The audit highlights areas that need improvement, enabling the company to focus its resources on the most critical areas.
Who Needs a Secretarial Audit?
Secretarial audit applicability is mandatory for every company registered under the Companies Act, 2013, including private and public companies, is required to conduct a secretarial audit. Companies that have paid-up share capital of ₹ 50 crore or more or have a turnover of ₹ 250 crore or more must also undergo secretarial audit.
In addition to the mandatory requirement, companies can also choose to conduct a voluntary secretarial audit to assess their compliance with the applicable laws, regulations, and guidelines.
Legal Requirements for Secretarial Audit
The Companies Act, 2013, mandates secretarial audit in section 204, and the rules for the same were prescribed in the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
According to the rules, a company must appoint a company secretary in practice to conduct the secretarial audit. The company secretary must hold a certificate of practice issued by the Institute of Company Secretaries of India (ICSI).
The Importance of Secretarial Audit report must be annexed to the Board’s report and submitted to the Registrar of Companies (RoC) along with the company’s annual return.
Penalties for Non-Compliance
Non-compliance with the secretarial audit requirement can lead to severe penalties for the company and its directors. The RoC can impose a penalty of up to ₹ 5 lakh on the company, and the directors may also face imprisonment of up to six months or a fine of up to ₹ 50,000 or both.
In addition to the legal penalties, non-compliance with secretarial audit can damage the company’s reputation and investor confidence, leading to a loss of business opportunities and revenue.
How to Prepare for Secretarial Audit
Preparing for a Importance of Secretarial Audit involves taking several steps to ensure compliance with the applicable laws, regulations, and guidelines.
- Appoint a Company Secretary in Practice: A company must appoint a company secretary in practice to conduct the secretarial audit. The company secretary must be a member of ICSI and hold a certificate of practice.
- Keep Records Up-to-date: Companies must maintain accurate and up-to-date records of their meetings, resolutions, contracts, and agreements.
- Maintain Statutory Registers: Companies must maintain statutory registers such as registers of members, directors, and debenture holders.
- File Required Documents With RoC: Companies must file various documents with RoC, such as the annual return, financial statements, and secretarial compliance certificate.
- Conduct Regular Compliance Checks: Companies must conduct regular compliance checks to identify any non-compliance issues and address them promptly.
Conclusion
In conclusion, Importance of Secretarial Audit is a critical process that helps companies to ensure compliance with the applicable laws, regulations, and guidelines. It also helps companies to improve their internal controls and processes, increase transparency, reduce the risk of fraud and errors, and promote better decision-making.
As a leading legal services provider, Vakilsearch can assist companies in ensuring compliance with the applicable laws, regulations, and guidelines by offering secretarial audit services. Our team of qualified company secretaries can help companies prepare for secretarial audit by conducting regular compliance checks, maintaining accurate records, and filing the required documents with RoC. By leveraging our expertise, companies can streamline their secretarial audit process, minimise the risk of non-compliance, and focus on their core business activities.
