A SECRETARIAL AUDIT

A secretarial audit is a process wherein a company’s compliance with statutory requirements and regulations is reviewed by a qualified professional, often a company secretary. This audit is particularly common in countries like India, where it is mandated by law for certain companies.

Purpose and Necessity

1. Compliance Verification: The primary goal of a secretarial audit is to ensure that the company is complying with various laws and regulations, including company law, securities regulations, and other applicable legal requirements.
2. Risk Management: It helps in identifying any non-compliance issues that could lead to legal penalties or operational risks.
3. Improved Governance: A secretarial audit can enhance corporate governance by ensuring that the company adheres to best practices and regulatory standards.
4. Investor Confidence: Regular audits can help boost investor confidence by demonstrating the company’s commitment to transparency and compliance.

Whom Should Perform It

1. Qualified Professionals: Typically, a secretarial audit should be conducted by a qualified Company Secretary (CS) who is a member of a recognized professional body, such as the Institute of Company Secretaries of India (ICSI).
2. Internal vs. External: While internal audits can be conducted by in-house company secretaries, external audits by third-party professionals can offer an unbiased perspective.

Overall, while a secretarial audit can be an essential tool for ensuring regulatory compliance and enhancing corporate governance, it also comes with costs and limitations that companies need to manage.

A SECRETARIAL AUDIT IS MANDATORY FOR THE FOLLOWING COMPANIES:

• Every listed company 
• Every public company with a paid-up share capital of at least Rs. 50 crore 
• Every public company with a turnover of at least Rs. 250 crore 
• Every private limited company with a paid-up capital of at least Rs. 50 crore or a turnover of at least Rs. 250 crore 

A SECRETARIAL AUDIT INCLUDES:

• Reporting on compliance with secretarial standards issued by the Institute of Company Secretaries of India. 
• Reporting on compliance with listing agreements. 
• Reporting on compliance with other laws that may apply to the company. 
• Non-compliance with secretarial audit requirements can result in penalties ranging from mild to severe. In some serious cases, the company's name may be removed from the register of companies.

Penalties and Fines

1. Regulatory Penalties: If a company fails to conduct a secretarial audit where required, it could face penalties or fines imposed by regulatory authorities. These penalties vary depending on the jurisdiction and the nature of the non-compliance.
2. Legal Consequences: Failure to comply with regulatory requirements can also lead to legal actions or restrictions imposed on the company’s operations.

Pros

• Enhanced Compliance: Regular audits help in ensuring that the company remains compliant with applicable laws.
• Risk Identification: Helps in identifying potential areas of risk and non-compliance.
• Corporate Governance: Improves overall governance practices and corporate transparency.

Cons

• Cost: Conducting secretarial audits can be expensive, especially for smaller companies.
• Time-Consuming: The process can be time-consuming and may require significant documentation and preparation.
• Complexity: Navigating the regulatory landscape can be complex, requiring specialized knowledge.

Limitations

1. Scope: The scope of a secretarial audit is typically limited to compliance with specific regulations and may not cover all aspects of a company’s operations.
2. Subjectivity: The effectiveness of the audit can depend on the auditor’s expertise and interpretation of regulations.
3. Frequency: Depending on jurisdiction, the frequency of required audits may vary, which could impact the timeliness of detecting non-compliance issues.