Secretarial Audit

A secretarial audit is a compliance mechanism that ensures a company adheres to legal and regulatory requirements under corporate law. It involves the verification of records, processes and procedures by a qualified professional to maintain transparency and good governance. This Audit helps identify non-compliances, mitigate legal risks, and enhance the company’s credibility with stakeholders, regulators, and investors, making it an essential part of corporate accountability.

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Secretarial Audit Services

A secretarial audit is an independent verification process mandated by the Companies Act, 2013, to ensure compliance with laws, rules, regulations, and procedures applicable to its operations. It is a powerful governance tool that evaluates whether a company adheres to legal and procedural requirements, thereby helping safeguard stakeholders' interests. A secretarial audit is conducted by a qualified Practicing Company Secretary (PCS). Unlike statutory financial audits, which focus on financial statements, a Secretarial Audit goes beyond numbers and delves into a company’s secretarial and legal frameworks. It provides actionable insights to improve transparency, strengthen governance mechanisms, and enhance the company’s credibility among regulators, investors, and stakeholders.

What is Secretarial Audit?

A secretarial audit has been mandated under the Companies Act, 2013, for specific classes of companies. It is an independent verification process conducted to assess whether a company complies with applicable laws, rules, regulations, and procedures. It primarily focuses on non-financial aspects of the company’s operations.

Appointment of Secretarial Auditor

The appointment of a Secretarial Auditor is governed by Section 204 of the Companies Act, 2013, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Who Can Be Appointed as a Secretarial Auditor?

Only a Practicing Company Secretary (PCS) who holds a Certificate of Practice (CoP) issued by the Institute of Company Secretaries of India (ICSI) is eligible to be appointed as a Secretarial Auditor in India. A PCS firm can also be appointed as a Secretarial Audit, provided that all the partners are PCS.

Who Appoints the Secretarial Auditor?

A Secretarial Auditor is appointed by the Board of Directors (BOD) by a resolution passed at a Board Meeting. It is worth noting that a secretarial auditor cannot be appointed through a circular resolution or delegated to a committee or officer.

Which Companies Need to Appoint a Secretarial Auditor?

A Secretariat audit is mandatory for the following classes of companies:

Every listed company
Every public company with a paid-up share capital of ₹50 crores or more
Every public company with a turnover of ₹250 crores or more

Voluntary Appointment by Private Companies

Private Companies are not mandated by law to appoint a secretarial audit, but they can voluntarily opt for one to maintain transparency, or if they are planning an IPO.

Objectives of Secretarial Audit

Ensure legal and procedural compliance: The foremost objective of a Secretarial Audit is to verify whether the company is complying with all applicable laws, rules, regulations, such as the Companies Act, 2013, SEBI regulations, FEMA guidelines, and other industry-specific laws.
Detect non-compliances and suggest corrective actions: The Secretarial Audit identifies lapses or defaults on the part of the company and offers suggestions to rectify these gaps and bring the company back on the right track.
Improve governance and transparency: A secretarial audit overseas will determine whether the company is following the law, fairness, accountability, and transparency in the decision-making processes. It will also ensure that the company’s internal systems, controls, and policies support transparent functioning.
Promote investor confidence: Investors invest only in companies that follow the best governance. A secretarial Audit shows the world that a company is serious about compliance and governance. It reassures the investors that the company is complying with its legal obligations efficiently.
Help the Board and management understand the compliance: The Secretarial Audit helps the Board of Directors and senior executives understand whether the company’s functioning aligns with the legal requirements. The audit gives them a clear view of the company’s compliance health and supports informed decision-making

Scope of Secretarial Audit

The secretarial audit encompasses compliance with:

The Companies Act, 2013
Securities Contracts (Regulation) Act, 1956 (SCRA)
Depositories Act, 1996
Foreign Exchange Management Act (FEMA), 1999 (to the extent applicable)
SEBI Regulations and Guidelines
Other laws applicable to the company, depending on its industry
Secretarial Standards issued by ICSI
Listing Agreements and Disclosure Obligations

Areas Covered in Secretarial Audit

Board meeting processes
Shareholder meeting documentation
Maintenance of statutory registers
Filing of forms and returns
Composition of Board and Committees
Disclosures and declarations
Policies under the Companies Act, 2013, and SEBI regulations
Investor grievance redressal

Difference Between Internal Audit and Secretarial Audit

Particulars	Internal Audit	Secretarial Audit
Governing Section	Section 138 of the Companies Act, 2013	Section 204 of the Companies Act, 2013
Objective	To evaluate internal controls, financial reporting, risk management, and operations.	To ensure compliance with legal, procedural, and secretarial laws.
Focus Area	Finance, accounts, internal controls, and operational efficiency	Corporate laws, secretarial records, board procedures, and statutory filings
Conducted By	Chartered Accountant (CA), Cost Accountant, or other professionals	Only by a Practicing Company Secretary (PCS) holding a valid Certificate of Practice
Applicability	Specific companies as notified under Rule 13 of the Companies (Accounts) Rules, 2014	Mandatory for listed companies and certain large public companies
Frequency	Quarterly, half-yearly, or annually, based on the needs of the company.	Annually, for the entire financial year.
Report Format	In the internal audit report, the Report Format is not prescribed under the Companies Act, 2013.	MR-3: Secretarial Audit Report prescribed under the Companies Act, 2013
Reporting Authority	The report is submitted to the Board or the Audit Committee	The report is annexed to the Board’s Report and filed with the Registrar of Companies (ROC)
Purpose	Enhances internal controls, detects inefficiencies, and fraud	Ensures transparency, corporate governance, and statutory compliance
Nature of Audit	Operational and financial	Legal and regulatory
Legal Filing Requirement	No requirement to file with the ROC	MR-3 is filed as part of the Annual Report

Process of Secretarial Audit

Step 1: Appoint the Auditor

The Process for appointment of a Secretarial Auditor is:

Obtain the Written Consent of the Company Secretariat
Issue a Board Meeting Notice
Hold the Board Meeting and pass a resolution for the appointment of the PCS for the financial year.
Issue a formal Appointment Letter to the PCS
Receive Acceptance from the Auditor
File the certified copy of the Board Resolution with the RoC in MGT-14 form

Step 2: Do the Preliminary Assessment and Planning

The PCS will hold initial meetings with the key managerial personnel (KMPs) and directors of the company

Step 3: Collect information and Records

Collect the following documents:

Incorporation documents (MOA, AOA, Certificates)
Statutory Registers (Members, Directors, Charges, etc.)
Minutes of Board, Committee, and General Meetings
Financial Statements and Annual Return
ROC filings (AOC-4, MGT-7, etc.)
Disclosures from Directors (MBP-1, DIR-8)
Policies and Codes (Insider Trading, Related Party, CSR, etc.)

Step 4: Examination of Secretarial and Legal Records

The PCS will check:

Whether Board and Annual General Meetings were held as per statutory timelines.
Whether notice, quorum, and agenda were compliant with Secretarial Standards (SS-1 and SS-2).
Maintenance of Statutory Registers in physical or electronic form.
Compliance with the board constitution and the rotation of directors.

Step 5: Verification of RoC Filings

The auditor will review whether all the mandatory e-forms and returns, such as MGT-7, AOC-4, DIR-12, etc., have been filed accurately within the prescribed manner.

Step 6: Review of Compliance with Laws such as:

In addition to the Companies Act, the PCS also checks compliance with:

SEBI Regulations and Depositories Act, 1996, and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
FEMA, RBI, Depositories Act (if applicable)
Industry-specific laws such as Insurance, Banking, NBFC, Pharma, etc.
Labour laws, EPF, ESI, Environmental clearances (if applicable)

Step 6: Assessment of Compliance

The PCS evaluates whether there is an effective internal compliance mechanism within the company.

Step 7: Draft Secretarial Audit Report (Form MR-3)

On the basis of audit findings, the PCS prepares a report in Form MR-3 as prescribed under the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Step 8: Report Submission

The final signed MR-3 report is signed and submitted to the Board of Directors. The company is mandated to annex the report to its Board Report in the Annual Report and file it with the RoC as part of its statutory filings.

Common Non-Compliances Detected During Secretarial Audit

Inadequate Documentation
Non-Compliance in Board and Committee Meetings
Inconsistent Adherence to Filing Deadlines
Absence of a Risk Management Framework
Communication Gaps Between Departments
Improper Maintenance of Statutory Registers
Non-Adherence to Secretarial Standards
Delayed or Incorrect Disclosures
Non-Compliance with SEBI Regulations
Lack of Internal Compliance Mechanisms

Why Choose Kanakkupillai for Secretarial Audit?

Conducting a secretarial audit may seem easy, but it demands meticulous attention to legal intricacies and regulatory frameworks. Kanakkupillai stands out as a trusted partner in this domain. We offer secretarial audit services tailored to your business needs:

Qualified Professionals: At Kanakkupillai, each audit is conducted by experienced Company Secretaries who have in-depth knowledge of Indian corporate laws and regulatory expectations.
Real-Time Compliance Insights: We don't just review documents; we help you understand your compliance status today and what needs to be fixed before issues arise.
Tailored Audit Strategy: We understand that every company is different. Our audit plan is structured around your business model and legal obligations.
Unmatched Professional Integrity: We maintain complete confidentiality of company data and uphold professional ethics at every step of the process.
Full Support: Once the audit is done, we guide you in implementing the improvements and preparing for the next phase.
Trusted by Businesses Across Sectors: From private companies to listed entities, our clients rely on us year after year for accurate and dependable secretarial audits.

Frequently Asked Questions

What is a Secretariat Audit in India? +

A Secretariat Audit is a governance-focused audit conducted under Section 204 of the Companies Act, 2013, and relevant SEBI regulations. It evaluates whether a company is complying with all applicable laws, secretarial standards, and corporate governance practices.

Who is required to conduct a Secretariat Audit? +

Listed companies and other prescribed classes of companies, such as public companies with a paid-up capital of ₹50 crore or more, or a turnover of ₹250 crore or more, must undergo a secretarial audit annually through a practicing Company Secretary.

How is a Secretariat Audit different from a Statutory Audit? +

While statutory audits focus on the financial accounts of a company, a secretariat audit is concerned with legal and procedural compliance. It ensures the company operates within the legal framework and follows best governance practices.

What is the outcome of a Secretariat Audit? +

The outcome is a Secretarial Audit Report in Form MR-3, which highlights compliance status, deviations, qualifications, observations, and recommendations for improvement.

Is the Secretarial Audit Report made public? +

Yes. It is annexed to the Board’s Report in the Annual Report filed with the Registrar of Companies (ROC), making it accessible to shareholders and regulators.

What are the consequences of non-compliance with Secretarial Audit requirements? +

If a company fails to comply, it may face regulatory scrutiny, penalties under the Companies Act, and reputational risk. Non-filing or concealment of non-compliance may also attract prosecution or penal actions from authorities like the MCA or SEBI.

Can a company secretary employed by the company conduct the audit? +

No. To maintain independence, the audit must be conducted by an independent Practicing Company Secretary (PCS), not by an internal company secretary or employee.

Is a secretarial audit applicable to private limited companies? +

It is not mandatory for private limited companies unless they meet the threshold limits notified under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. However, some choose to conduct voluntary audits for good governance.