Secretarial Audit

1

• Secretarial Audit
• A Presentation by
• Dr K R Chandratre
• Practising Company Secretary Past President, The
  Institute of Company Secretaries of India

2

• Need for Legal Compliance System (LCS)
• Multiplicity and complexity of laws- LCS
  facilitates to ensure compliance and avoid risk
  associated with non-compliance. It has two-fold
  objective

3

• Firstly, to protect the interests of the
  customers, employees, revenue, environment, and
  directors and officers of the company.
• Secondly, to avoid any unwarranted legal actions
  by the law-enforcing agencies and other persons
  as well.

4

• Clause 49 of Listing Agreement (LA) requires
  Board to periodically review compliance reports
  concerning all laws applicable to the company and
  steps taken to rectify non-compliances.

5

• MCAs Corporate Governance Voluntary Guidelines
  2009, recommend all companies to introduce
  Secretarial Audit (SA) to be done by a competent
  professional and the Board to give its comments
  on the SA report in the directors report to the
  shareholders.

6

• SA An Effective Tool for Efficient Corporate
  Compliance Management
• The SA is an effective tool for corporate law
  compliance management relating to corporate laws.
  It helps ensure flawless compliance and timely
  corrective action when non-compliance is
  discovered.

7

• The benefits of SA are manifold, and its
  beneficiaries are many, including promoters,
  directors, investors, lenders, employees,
  Government and government agencies, and the last
  but not least, the public at large.

8

• Purpose of SA
• To form an opinion, based on the inspection of an
  companys record by an independent external
  expert, and to report to the management as to
  whether, and if so, to what extent, the company
  has complied with the laws and also to help the
  company to comply better.

9

• The SA Report aims at confirming compliance by
  the company with all the applicable provisions
  of the applicable laws and pointing out
  non-compliances and recommendations for better
  compliance.

10

• Thus, SA helps-
• to ensure effective compliance
• to improve quality and speed of compliance.
• to reduce the risk of consequences of
  non-compliance

11

• Scope of SA
• Since currently SA is voluntary, its scope is
  entirely a managements discretion.
• It is wider in scope than Compliance Certificate
  u/s 383A and covers all corporate laws and SEBI
  regulations/guidelines as applicable to the
  company.

12

• However SA can be a full-fledged legal audit in
  which case its scope is wider than SA limited to
  corporate and securities laws in particular-
• Companies Act, Rules, Regulations, Memorandum and
  Articles of Association
• Depositories Act
• SEBI Act and Regulations/Guidelines
• SCRA, Listing Agreements

13

• Outline of the SA Process
• Deciding the scope
• Determining applicable laws
• Preparing list of documents to be checked
• Drawing up timetable
• Identifying people to carry out the audit

14

• Knowing people to interact with
• Reviewing progress at suitable intervals
  depending upon coverage.
• Drafting SA Report and sharing it with the
  company officers (mainly company secretary)
• Complete the SA within given time.

15

• Advise on non-compliances or inadequate
  compliances for corrective action, eg non-filing
  and late filing of forms.
• Discuss substantive issues, eg whether Board
  composition was as per cl 49 of LA whether
  Takeover Code applied to the particular
  acquisition of shares.

16

• Final SA Report
• Usually SA Report is placed before Audit
  Committee and then before the Board. Sometimes
  only executive summary is placed before the
  Board.
• Annual SA Report approved by Board and published
  in Companys Annual Report.

17

• Is PCS a fit and proper person to do SA?
• Yes! PCS is most competent, fit and proper
  professional to do SA.
• PCS is a highly specialized professional in
  matters of statute law, and procedural and
  practical aspects involved in legal compliances
  under various corporate laws as Corporate laws is
  the core competence of PCS.

18

• Checklists
• Pre-drafted checklists on all applicable laws
  have a crucial role to play in SA.
• They act as signposts facilitating systemic and
  perfect approach to effective Secretarial Audit.
• Without checklists it would be an exercise
  groping around in the dark.
• For sample checklists see the document circulated