In the complex and dynamic business environment of India, compliance with statutory regulations and corporate governance norms is of paramount importance. To ensure that companies adhere to these norms and maintain transparency in their operations, the concept of secretarial audit has gained prominence. In this blog, we will delve into the world of secretarial audit in India, with a focus on its significance for private companies, the role of CS professionals, and the essentials of company secretarial audits.
Understanding Secretarial Audit
Secretarial audit, also known as compliance audit, is a process that evaluates a company’s compliance with various laws, regulations, and procedures. It ensures that a company adheres to the provisions of the Companies Act, 2013, and other applicable laws and guidelines. The primary objective of the secretarial audit is to prevent non-compliance and minimize legal risks, thereby enhancing corporate governance.
Secretarial Audit for Private Companies
Private companies in India are not exempt from the requirement of a secretarial audit. While it was initially mandated for listed companies and companies with a paid-up share capital of INR 50 crore or more, the scope of secretarial audit has expanded to cover private companies meeting specific criteria. These criteria typically relate to the company’s turnover, share capital, and outstanding loans or borrowings.
Private companies that meet the prescribed thresholds must appoint a qualified Company Secretary (CS) in Practice to conduct a secretarial audit annually. This audit ensures that private companies comply with their statutory obligations, maintain proper records, and meet the requirements of corporate governance.
The CS Professional’s Role in Secretarial Audit
CS professionals play a pivotal role in secretarial audits in India. They are experts in corporate laws and governance and are equipped to assess a company’s compliance status comprehensively. Here are some key responsibilities of a CS professional in secretarial audit:
- Conducting Thorough Audits: CS professionals meticulously review the company’s records, registers, and documents to ensure compliance with the Companies Act and other applicable laws. They assess the company’s adherence to board resolutions, annual filings, and disclosure norms.
- Identifying Non-Compliance: If any non-compliance or irregularities are detected during the audit, CS professionals report them to the company’s management and board of directors. They also provide recommendations for corrective actions.
- Certification: After a thorough examination, CS professionals issue a secretarial audit report. This report serves as a certification of the company’s compliance status and is submitted to the Registrar of Companies (ROC).
Company Secretarial Audit Essentials
A comprehensive company secretarial audit covers various aspects of a company’s operations. Some of the key areas that are scrutinized during the audit include:
- Corporate Governance: The audit evaluates the company’s adherence to corporate governance norms, such as the constitution of board committees, appointment of independent directors, and code of conduct for directors and senior management.
- Statutory Registers and Records: CS professionals ensure that the company maintains proper registers, records, and documents as required by law. This includes registers for members, shares, and debentures, among others.
- Annual Filings: The audit verifies whether the company files its annual returns and financial statements with the ROC within the prescribed timelines. Non-filing or late filing can lead to penalties.
- Disclosure and Transparency: The audit assesses the accuracy and completeness of disclosures made in financial statements, annual reports, and other documents. It also checks compliance with disclosure norms specified by the Securities and Exchange Board of India (SEBI).
In India, secretarial audit has emerged as a crucial tool for promoting corporate governance and ensuring compliance with legal and regulatory requirements. Private companies, in particular, must be diligent in conducting secretarial audits to mitigate legal risks and maintain transparency in their operations. CS professionals play an indispensable role in this process, offering their expertise to uphold corporate integrity. By embracing secretarial audits, companies can not only protect themselves from legal troubles but also build trust and credibility in the eyes of stakeholders.