Secretarial Audit is a tool used in corporate governance that ensures a company is following all the rules and laws related to compliance. Many people think audits are only financial. But in the real life situations, also needs to follow legal and procedural rules under the Companies Act and other laws. Secretarial Audit checks exactly that. It is not about numbers, it is about procedures, filings, and company law records.
In India, the importance of Secretarial Audit has grown over the years, especially for bigger companies. It helps in identifying whether the company is functioning in a legally correct way and whether it is following proper procedures. This article explains the concept of Secretarial Audit, how it works, what laws govern it, and why it is becoming an important part of corporate compliance in India.
What is Secretarial Audit?
Secretarial Audit is a process where a qualified professional, usually a practicing Company Secretary, checks whether a company is complying with the various laws applicable to it. This includes checking whether meetings are conducted properly, whether statutory registers are maintained, whether returns are filed on time, and whether the company is following the legal processes mentioned under the Companies Act, 2013.
Unlike financial audits that deal with accounts and financial statements, Secretarial Audit deals with documents, approvals, resolutions, filings, disclosures, and other company law requirements. It is more about how the company is managing its internal legal system.
Legal Framework Governing Secretarial Audit in India
The legal base for Secretarial Audit in India is found under the Companies Act, 2013, specifically under Section 204. It clearly states that certain classes of companies must get a Secretarial Audit done by a practicing Company Secretary.
As per the law, the following companies are required to conduct Secretarial Audit:
- Every listed company
- Every public company with a paid-up share capital of fifty crore rupees or more
- Every public company with a turnover of two hundred fifty crore rupees or more
Scope of Secretarial Audit
Secretarial Audit covers a wide range of areas. Some of the key items that are usually reviewed by the Company Secretary during the audit include:
- Compliance with the Companies Act, 2013
- Observance of Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI)
- Filing of ROC (Registrar of Companies) Forms and Returns
- Maintenance of Statutory Registers and Minutes
- Proper constitution of the Board and Committees
- Disclosure of interests by directors
- Compliance with SEBI regulations (for listed companies)
- Ensuring resolutions are passed and recorded properly
- Related party transactions
- Issue or allotment of shares, if any
- Transfer of shares, dividend declarations, etc.
The audit may also include checking compliance under other laws depending on the industry — like labour laws, environmental laws, and FEMA in case of foreign investments.
Who Conducts Secretarial Audit?
Only a Company Secretary in Practice is authorised to conduct a Secretarial Audit under Section 204. This person must hold a valid certificate of practice issued by the Institute of Company Secretaries of India (ICSI).
The Company Secretary must be independent. That means he or she should not be employed by the company or have any financial interest that could affect their judgment. Their role is to act like a watchdog who gives an unbiased report about the company’s legal health.
Steps Involved in Conducting a Secretarial Audit
Secretarial Audit follows a systematic process. Each stage is important to ensure the report is reliable and covers everything needed. The steps generally followed are:
- Appointment of Auditor
The company formally appoints a Company Secretary in Practice by passing a board resolution. The CS gives a consent letter before beginning the audit.
- Planning the Audit
The CS prepares an audit plan which includes understanding the company’s structure, past compliance history, and specific laws applicable to it.
- Collection of Documents
The auditor requests important documents like statutory registers, meeting notices, minutes, financials, board resolutions, annual filings, and agreements.
- Examination of Records
The auditor checks all records and documents to ensure they match with the legal requirements. For example, checking whether board meetings were held on time or whether minutes were signed properly.
- Identifying Gaps
If there are any errors, delays, or non-compliance, the CS makes a note of it. These are called observations or qualifications in the report.
- Discussion with Management
Before finalising the report, the CS may discuss his or her findings with the company’s directors or compliance officer. Sometimes, minor errors can be corrected.
- Issuing the Report
Finally, the CS issues the Secretarial Audit Report in Form MR-3. It contains a summary of findings, observations, and recommendations.
Importance of Secretarial Audit
Many companies think that Secretarial Audit is just another compliance task. But in reality, it has many benefits that go beyond just legal formality.
- Promotes Good Governance
Secretarial Audit brings discipline into the system. It ensures that all processes, meetings, and decisions are well recorded and legally valid. This improves transparency in the company.
- Protects Directors
If the company is not following legal procedures, the directors can be held responsible. A Secretarial Audit points out such risks in time and gives the board a chance to fix them.
- Builds Investor Confidence
Investors like to deal with companies that are well-managed and legally sound. A clean Secretarial Audit report creates a good image and builds trust.
- Prevents Penalties
Non-compliance can lead to penalties, fines, or even disqualification of directors. Secretarial Audit helps in early detection of such problems and reduces legal risks.
- Helps During Takeovers or Funding
If a company is planning a merger, acquisition, or fresh funding, legal due diligence becomes very important. A proper Secretarial Audit makes this process smoother.
Role of Company Secretary in Secretarial Audit
The role of the CS in Secretarial Audit is not limited to just checking papers. They are expected to use their professional judgment, stay updated with legal changes, and guide the company in case any compliance issue arises.
A good Company Secretary will not only point out gaps but also help the company in fixing them. They act as an advisor who understands the internal working of the company and helps align it with external legal expectations.
Challenges Faced in Secretarial Audit
Even though the process sounds systematic, conducting a proper Secretarial Audit comes with its own challenges:
- Lack of cooperation from company staff
- Missing documents or incomplete registers
- Delay in sharing information
- Multiple laws applicable depending on industry
- Changes in management during the audit
- Not maintaining proper digital records
To overcome these, it is important for companies to prepare in advance and treat the audit seriously.
Conclusion
When we hear the word “audit”, most people only think about finance. But company compliance goes much beyond just numbers. It is also about proper meetings, documents, filings, approvals, and decisions. That is exactly what Secretarial Audit looks at. It makes sure the company is doing things the way the law wants it to. It may not seem like a big deal in the beginning, but if ignored, small compliance errors can later become serious issues.
Secretarial Audit is like a health check-up for a company’s legal practices. Just like how people go for regular medical tests to stay ahead of any illness, companies should use Secretarial Audits to catch legal problems early. It is a way of being proactive instead of waiting for a notice from a regulator or a complaint from a shareholder.
Another reason this audit matters is because it protects the board and the senior management. Today, directors are personally held responsible for a company’s mistakes. Even if they were not directly involved, the law still expects them to make sure everything is being done right. A proper Secretarial Audit helps them stay aware and avoid legal risks.
Also, with more investors, regulators, and stakeholders becoming strict about governance, companies cannot afford to be careless. Having a clear and clean Secretarial Audit report helps in building trust. Whether it is a potential investor or a rating agency, everyone prefers a company that is well-organised legally.
From the Company Secretary’s side, the role is also very important. It is not just about checking registers and ticking boxes. A good CS adds real value by pointing out gaps, helping the company fix issues, and making sure everything is in line with the law. They become the link between the company and legal compliance.
In the coming years, Secretarial Audit will become even more relevant. With laws getting stricter, and digital filings being monitored more closely, companies will need to stay alert. It is not only about avoiding penalties anymore. It is about being respected in the business world, attracting better partnerships, and being ready for future growth.
