Secretarial Audit, An Overview

Secretarial Audit

Secretarial Audit is a process to check compliance with the provisions of various laws and rules/ regulations/ procedures, maintenance of books, records etc. by an independent professional to ensure that the company has complied with the legal and procedural requirements and also followed due processes.

Secretarial Audit helps to detect the instances of non-compliance and facilitates taking corrective measures. It audits the adherence of good corporate practices by the company.

It is therefore an independent and objective assurance intended to add value and improve operations of the Company. It helps to accomplish the organization’s objectives by bringing a systematic, disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.

Secretarial Audit thus provides necessary comfort to the management, regulators and the stakeholders, as to the statutory compliance, good governance and the existence of proper and adequate systems and processes.

Objectives of Secretarial Audit

The objectives of Secretarial Audit are mentioned below as follows:-

  • To verify & report on compliances of applicable laws and Secretarial Standards;
  • To point out non-compliances and inadequate compliances;
  • To protect the interest of various stakeholders i.e. the customers, employees, society etc;
  • To avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well.

Applicability of Secretarial Audit

Secretarial Audit is a mandate for the below-mentioned companies. Also, these companies are required to prepare the Secretarial Audit Report.

  • Every Listed Company
  • Every public company has a paid-up share capital of 50 crore or more.
  • A public company has a turnover of more than Rs. 250 crore or more.
  • Every company has outstanding loans or borrowings from banks or public financial institutions of 100 crores or more.

Applicable Provisions

Section 204 of the Companies Act, 2013 read with Rule 9 of Companies, (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Benefits of a Secretarial Audit

The Benefits of a Secretarial Audit are as follows:-

  • It can be a part of due diligence for someone who wants to acquire the company or have any interest in the company or a joint venture partner.
  • It assures the owners that the management and affairs of the company are being conducted according to the provisions and the stake of the owner is not under any risk.
  • It helps in self-regulation and professional discipline.
  • Enables timely compliances.
  • It portrays a good image in front of the investors about the legal records of the company.

 Beneficiaries of Secretarial Audit

The beneficiaries of Secretarial Audit are-

  • Promoters
  • Management 
  • Non–Executive Directors 
  • Government Authorities 
  • Investors
  • Other Stakeholders  

Laws specifically mentioned in the Secretarial Audit Reports

In terms of the Secretarial Audit report, the Secretarial Auditor needs to examine and report the compliance with the following Laws-

  • The Companies Act, 2013 (the Act) and the Rules made there under,
  • The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with the client;
  • The following Regulations and Guidelines are prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’)
  • The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the Rules made there under,
  • The Depositories Act, 1996 and the Regulations and Byelaws framed there under,
  • Foreign Exchange Management Act, 1999 and the rules and regulations made there under to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings,
  • The SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
  • The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
  • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992/ SEBI (Prohibition of Insider Trading) Regulations, 2015;
  • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
  • The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999/ SEBI (Share Based Employee Benefits) Regulations, 2014;
  • The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
  • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Pre- Requisites for a Secretarial Audit 

The prerequisites are given below:

  • The Secretarial Audit Report should be prepared by a practicing Company Secretary
  • It should be prepared as per Form MR-3 format 
  • The Report should be laid as an annexure by the company in the Board Report.

Eligibility Criteria for the Appointment of a Secretarial Auditor 

The Members of the ICSI (Institute of Company Secretaries of India), holding the certificate of practice which are validated to perform a secretarial audit, can only conduct a Secretarial Audit and prepare the Secretarial Audit Report of the Company.

Documents are required for Secretarial Audit

Below-mentioned documents are required for Secretarial Audit-

  • Charter Documents and Statutory Registers;
  • Board and General Meeting Minutes & Notices;
  •  Last year’s Secretarial Audit Report And Audited financial statements;
  • If the company is listed- ROC;
  • Filings & Intimations, Advertisements;
  •  Stock Exchanges, Newspaper;
  •  Lease Deed, Bonds, Annual Performance Reports, and other returns;
  • If there is a foreign investment then the filings with RBI and other statutory departments are needed;
  • Registers that are maintained as per Labour Laws;
  • Statement and Admission for code of conduct received from the directors;
  • Sitting fees and remuneration details paid to directors;
  • Particulars of CSR amount;
  • SAST Disclosures;
  •  Details of Bank account regarding dividend;
  •  If there are any foreign borrowings in the company the details of ECB Returns are required.

Procedure of the Secretarial Audit

The procedure for Secretarial Audit is given below:-

  • Appointment of Secretarial Auditor

The appointment of a Secretarial Auditor is made by passing a resolution in the Board Meeting.

  • Communication to earlier Incumbent

After passing the resolution, the next step is formally informing the secretarial auditor about his appointment. This can be done by proposing an engagement letter to the Secretarial Auditor. 

  • Acceptance of Appointment by the Secretarial Auditor

After the formal communication of employment, the secretarial auditor needs to accept the appointment by signing the Letter of Engagement. 

Initial Discussions about the company with the Secretarial Auditor The next step is to discuss the company with the secretarial auditor so that he know the structure of the company 

  • Preliminary Meeting with the Auditor

After this, there is a meeting with the auditor to decide to make an audit plan. 

  • Finalization of the Audit plan and briefing the staff

After the meeting with the auditor and discussing the audit plan, the next step is to finalize the audit plan and inform others about the same to other staff. 

  • Testing, Interview and Analysis

 After this step, the next step is to do the testing interview and analysis. 

  • Preparation of Working Report 

The next step is preparing the working report by the secretarial auditor. A working report consists of all the Secretarial audit reports of the company.

  • Audit Summary for Discussions

The next step is to prepare the audit summary and discuss the same with the concerned persons.

  • Submission of Secretarial Audit Report

The final step is the submission of the report by the secretarial auditor.

Process Reporting Qualification in the Secretarial Audit Report

During the preparation of the Secretarial Audit report, the auditor can point out where there is non compliance of the required laws in Bold type or Italics. in case the auditor is unable to express an opinion on any matter he can specify the same, stating the reasons thereof. 

The auditor should provide all the limitations in the report and the reason why he cannot give an opinion on the same Further, the Board of Directors (BoDs) of the company shall mention all the remarks of the auditor in the resolution.

Penalty for Fraud and False Statement 

The Companies Act 2013 provides the penal provisions related to committing fraud and giving a false statement. The penal provisions are given below – 

  • Section 447

This section states that if any person is found to commit fraud shall be liable for a minimum imprisonment of 6 months which may extend to 10 years, along with a fine which can be thrice the amount of the fraud committed. 

In relation to the affairs of the company, fraud can be defined as the commission of any illegal act or omission of any legal act, abuse of position, concealment of fact with the intention to deceive, gain undue advantage or hamper the interests of the shareholder or creditors of the company or any other individual irrespective of the fact that there is a wrongful loss or wrongful gain.

  • Section 448

This section deals with the penalty for false statements. The section provides that if in any report, certificate, return, financial statement, prospectus, statement or other document required by, or for any of the provisions of this Act or the rules made there under, anyone makes any

  •  false statement about any material particulars, knowing it to be false; 
  •  a statement that omits any material fact, knowing it to be material

Section 204(4) further provides that if the Company Secretary in Practice contravenes the provisions of Section 204, he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.


Secretarial Audit is an independent verification of the records, books, papers and documents by a Company Secretary to check the compliance status of the company and also to ensure the compliance of legal and procedural requirements and processes followed by the company. Secretarial Audit has not been made mandatory for private companies and small public companies. These companies may adopt secretarial audit practices for ensuring compliance and avoiding the risks associated with non-compliance.

An audit is to be on the principle of “Prevention is better than cure” rather than postmortem exercise and to find faults. It strengthens the image and goodwill of a company in the minds of regulators and stakeholders. 

Frequently Asked Questions on Secretarial Audit

Q1. Who can sign the Secretarial Audit Report?

Ans: The Secretarial Audit Report should be signed by the Secretarial Auditor who has been engaged by the company to conduct the Secretarial Audit and in case of a firm of Company Secretaries, by the partner under whose supervision the Secretarial Audit was conducted.

While conducting and signing the Secretarial Audit Report, the Company Secretary in Practice should ensure that he holds the valid certificate of practice number.

Q2. How is the Secretarial Auditor appointed?

Ans: As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting. It is advisable for the Secretarial Auditor to get the letter of engagement from the company. The Secretarial Auditor should formally accept the letter of engagement.

Further, as a prudent corporate practice, it is advisable that changes in the Secretarial Auditor during the year are reported to the members in the Board’s Report.

Q3. Whether communication to the earlier incumbent is required ?

Ans: Yes, whenever a Practicing Company Secretary is 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.

Q4. What is the difference between Secretarial Audit and Secretarial Compliance Report? 

Ans: Secretarial Audit covers broad check on compliances of overall applicable acts to the Company like SEBI Act, Companies Act, Depositors Act, FEMA, SCRA and other industry specific laws while Secretarial Compliance Report covers only SEBI Act and its regulations, circulars issued thereunder.

Q5. What is the time limit of Submission of Secretarial Compliance Report?

 Ans: Within 60 days from the closure of the Financial Year.

Q6. What is the Secretarial Audit Report’s format?

Ans: The Secretarial Audit Report must be submitted in the format outlined in Form MR-3.

Q7. How frequent will this form of audit be carried by a company?

Ans: Carrying out proper security audits have to be in compliance with the requirements of the companies act, 2013. However these audits have to be carried out in the following period:

  • Periodically,
  • Quarterly,
  • Half-year and,
  • Annually.

Q8. Whether the Secretarial Audit is voluntary or mandatory as per the provisions of Companies Act, 2013?

Ans: Pursuant to the provisions of section 204 of the Companies Act 2013, every listed company and company belonging to class of companies as prescribed is required to annex with its Board’s report, a Secretarial Audit Report given by a Company Secretary in Practice.

Companies which are not covered under section 204 may obtain Secretarial Audit Report voluntarily as it provides an independent assurance of the compliances in the company.