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Secretarial Audit

In simple words the approach for managing compliance overall throughout the organization includes a secretarial audit.

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Introduction

The secretarial audit is a practical method for overseeing organizational compliance. It also aids in spotting noncompliance and putting the right corrections in place. The purpose of a secretarial audit is to determine whether a firm is following all applicable laws, rules, regulations, policies, records, accounting, bookkeeping, etc. A different specialist may be in charge of the company's secretarial audit. A practice is making sure that the laws and ordinances are followed and observed. The application of the secretarial audit report always follows the right method. The primary purpose of it is to verify that the applicable laws are being obeyed.

In simple words the approach for managing compliance overall throughout the organization includes a secretarial audit.


Applicability of Secretarial Audit: -

The companies listed below have a mandate for secretarial audits. These businesses must also create the Secretarial Audit Report.

  • Every Listed Company
  • Every public company has a paid-up share capital of 50 crore or more.
  • Each Listed firm Each public firm has a paid-up share capital of at least Rs. 50 crore, a minimum annual revenue of Rs. 250 crore
  • A minimum borrowing of Rs. 100 crore.

Benefits

Secretarial Audit Benefits:-

The following are some advantages of a secretarial audit:

  • It could be a component of due diligence for someone looking to buy the business, have an interest in it, or partner in a joint venture.
  • It gives the owners the assurance that the company's management and affairs are being handled in accordance with the law and that their investment is not at risk.
  • Self-control and professional discipline are aided.
  • Allows for prompt compliance.
  • It gives the investors a positive impression of the company's legal history.

    Secretarial audit's beneficiaries

    Secretarial audit's beneficiaries are:

  • Promoters
  • Management
  • Independent Directors
  • Governmental Institutions
  • Investors
  • other parties involved 

MAJOR STEPS FOR SECRETARIAL AUDIT

STEP  1-  Create a checklist for the audit that contains all the legal and administrative standards that must be followed.

STEP 2-  Check the company's compliance with the set checklist to make sure.

STEP 3-   Results of the verification process are communicated to management of the company, along with recommendations for remedial action if necessary.

STEP 4-   The management of the organization is expected to take the necessary steps to address any non-compliances found in the audit report.

STEP 5- The audit report (in Form MR-3) must be submitted to the appropriate regulatory authorities as the last step.


Documents Scrutinized

  • The Charter Documents
  • Secretarial Audit Report from last year
  • Legislative Registers
  • Certified financial statements
  • filings with other statutory agencies
  • filings with the RBI (if a foreign investment is made)
  • ECB Returns (if the corporation has any overseas borrowings)
  • Registers kept in accordance with labor laws
  • Disclosures and Code of Conduct Declarations Received from the Directors
  • sitting costs and director compensation information
  • Proof of CSR expenditure
  • Disclosures SAST
  • Account information for a dividend
  • Any other information and report as per the industry specific

PENALTY

CONRAVENTION OF SECTION2 04 OF COMPANIES ACT 2013

If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be liable to a penalty of two lakh.

 


PENALTY FOR INCORRECT AUDIT REPORT

  • SECTION 447 OF COMPANIES ACT ,2013

According to this clause, anyone found guilty of fraud faces a minimum sentence of six months in jail and a maximum of ten years in prison, as well as a fine that may be triple the amount of the fraud that was perpetrated.

Fraud, as it relates to corporate affairs, is defined as the commission of any illegal act or omission of any legal act, abuse of position, concealment of fact, or any combination thereof, with the intent to deceive, obtain an unfair advantage, or impede the interests of the company's shareholders, creditors, or any other individual, regardless of whether there has been a wrongful loss or gain.

  • SECTION 448 OF COMPANIES ACT , 2013

The punishment for making false statements is covered in this section. According to the section, if someone makes any false statements in any report, certificate, return, financial statement, prospectus, statement, or other document required by, or for any purpose of, this Act or the rules issued thereunder,

  • False statement concerning any significant details, with knowledge that it is incorrect;
  • A claim that, knowing it to be true, omits any relevant information
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