Secretarial Audit is a process to check compliances with the provisions of all applicable laws and rules/regulations/procedures and adherence to good governance practices.
According to sec 204 of the Companies Act 2013, Secretarial Audit is mandatory for every listed company and companies belonging to other prescribed class of companies.
As per rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the prescribed class of companies is as under:-
Every public company having paid up share capital of fifty crore rupees or more; or
Every public company having a turnover of two hundred fifty crore rupees or more.
Such companies are required to annex a Secretarial Audit report with its Board Report. As per sub rule (2) of Rule 9, the Secretarial Audit report shall be in Form No. MR. 3.
Objects of Secretarial Audit:-
The objects of Secretarial Audit are as under:
To Check and Report on Compliance;
To Point out Non- Compliance and Inadequate Compliances;
To Protect the Interest of the Customers, Employees, Society etc.
To avoid any unwarranted legal actions by law enforcing agencies and other person as well.
Secretarial Audit is the process of independent verification, examination of the level of compliance with applicable corporate laws to a company. Secretarial Audit is based on the principle “prevention is better than cure”.
Need for Secretarial Audit:-
Provides a level of confidence to the directors, officers in default, key managerial personnel etc.
The effective mechanism to ensure that the legal and procedural requirements are duly complied with.
Directors can concentrate on important business matters as Secretarial Audit ensures legal and procedural requirements.
Strengthen the image and goodwill of a company in the minds of regulations and stakeholders.
Secretarial Audit is a effective compliance risk management tool.
Secretarial Audit is an effective governance tool.
It helps the investor in analyzing the compliance level of compliances, thereby increase the reputation.
Benefits of Secretarial Audit:-
Following are the benefits of Secretarial Audit:
It assures the owners that management and affairs of the company are being conducted in accordance with requirements of laws, and that the owners stake is not being exposed to undue risk.
It ensures the management of a company that those who are charged with the duty and responsibility of compliance with the requirements of law are performing their duties competently, effectively and efficiently.
Instilling professional discipline and self regulation.
It ensures the management that the company has complied with the law therefore they are not likely to be exposed to penal or other liability or to action by law enforcement agencies for non-compliance by the company.
Reduce the work load of the regulators due to better and timely compliance.
Beneficiaries of Secretarial Audit:-
Promoters:- secretarial audit assure the promoters of a company that those in charge of its management are conducting its affairs with the requirement of laws.
Management:- secretarial audit assure the management that those who are entrusted with the duty and responsibility of compliance are performing their role effectively and efficiently.
Government authorities/regulators:- secretarial audit reduce the burden of law enforcement authorities and promotes governance and the level of compliance.
Investors:- secretarial audit inform the investors that the company is conducting its affairs within the applicable legal framework.
Other stakeholders:- financial institutions, banks , creditors, and consumers etc are the beneficiaries of secretarial audit.
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