Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Saturday, June 25, 2016

Secretarial Audit Scope & Applicablity

Secretarial Audit is basically an audit to check the compliance of various laws applicable to the Company. Through Secretarial Audit it is ensured that whether there exist proper and adequate systems and process in the Company commensurate with the size and operation of the Company to monitor and ensure compliances with applicable laws, rules, regulation. It is a tool to improve effectiveness of  risk management, control, Corporate practices by the Company.
Applicability of Secretarial Audit:
As per Sub-Section 1 of Section 204 of the Companies Act,2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules, 2014:-
        i.            Every Listed Company,
      ii.            Every Public Company having a paid share capital of 50 Crore or more,
    iii.            Every Public Company having a turnover of 250 Crore or more.
Companies not covered under the ambit of Section 204(1) of the Companies Act, 2013 may voluntarily opt for Secretarial Audit, as it provides an independent assurance of the compliances in the Company.

Secretarial Audit Report:
Ø  Section 204(1) of the Companies Act, 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014, provides that every listed company and every prescribed company shall annex with its Board Report, a Secretarial Audit Report, given by a Practicing Company Secretary in format prescribed in Form MR-3.
Ø  Details of specific events and actions occurred during the reporting period having major bearing on the affairs of the Company in pursuant to laws, rules and regulation applicable on the company for the time being in force must be stated in the Secretarial Audit Report.
Ø  Only a Practicing Company Secretary, engaged by company to conduct Secretarial Audit and holding a valid certificate of practice number can sign the Secretarial Audit Report.
Ø  And in case of firm of Company Secretaries, the partner of the firm under whose supervision the Secretarial Audit was conducted can sign the Secretarial Audit Report.   
Secretarial Auditor and his Appointment:
i.            Only a member of the Institute Of Company Secretaries of India holding Certificate of practice can conduct Secretarial Audit.
ii.            Secretarial Auditor is required to be appointed by means of a resolution passed at a duly convened Board Meeting as provided in rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014.Secretarial Auditor should formally accept the letter of engagement.
iii.            Secretarial Auditor is required to get the notice of Annual General Meeting in which his report
is to be laid before the members.
iv.        Section 143 of the Companies Act, 2013 deals with powers and duties of Auditors. Further sub-section (14) of the section provides that the provisions of this section shall mutatis mutandis apply to the Company Secretary in Practice conducting Secretarial Audit under section 204.
v.        Practicing company secretary, appointed as Secretarial Auditor in place of the existing Secretarial Auditor, he/she should communicate the appointment to the earlier incumbent in writing, in view of the provisions of clause (8) of Part I of the First Schedule to the Company Secretaries Act, 1980 and the relevant pronounced judgments.

Scope of Secretarial Audit:
Basically scope of Secretarial Audit includes reporting compliance of following five specific laws and other laws:
i.            The Companies Act, 2013 and the rules made there under.
ii.            The Securities Contracts (Regulation) Act, 1956 and rules made there under.
iii.            The Depositories Act, 1996 and the Regulation and Bye-laws framed there under.
iv.            Foreign Exchange Management Act, 1999 and the rules and regulation made there under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowing.
v.            The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act,1992:-
a)      The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
b)      The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;
c)      The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
d)      The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999;
e)      The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
f)       The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations,1993 regarding the Companies Act and dealing with client;
g)      The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
h)      The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

 In addition to above following other laws as may be applicable specifically to the Company:
·         Reporting on compliance of secretarial standards issued by the Institute of Company· Secretaries of India;
·         Reporting on Compliances with the Listing Agreement;
·         Reporting on compliance of ‘Other laws as may be applicable specifically to the company’· which shall include all the laws which are applicable to specific industry, for example for Banks all laws applicable to Banking Industry; for insurance company all laws applicable to insurance industry; likewise for a company in petroleum sector all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc.
·         Examining and reporting whether the adequate systems and processes are in place to· monitor and ensure compliance with general laws like labour laws, competition law, environmental laws.
·         Examining and reporting specific observations / qualification, reservation or adverse· remarks in respect of the Board Structures/system and processes relating to the Audit period.
·         In case of financial laws like tax laws and Customs Act etc., Secretarial Auditor may rely on· the Reports given by statutory auditors or other designated professionals. Secretarial Auditor needs to examine and report on the compliance with the applicable clauses of the following:
·         (i) Secretarial Standards issued by The Institute of Company Secretaries of India and approved by the Central Government.
·         (ii) The Listing Agreements entered into by the Company with Stock Exchange(s), if applicable;
         Contributed by Mohd Sharjeel Awasi ( Company Secretary and CA Finalist)


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