ICSI Secretarial Audit, Meaning, Process, Importance

ICSI Secretarial Audit is an important part of corporate governance that ensures a company operates in accordance with all applicable laws, regulations, and secretarial standards. It is conducted by qualified professionals, and this audit helps maintain transparency, accountability, and good governance practices within an organization.

The Institute of Company Secretaries of India (ICSI) introduced the concept of Secretarial Audit under Section 204 of the Companies Act, 2013, to strengthen the compliance system in Indian corporates.

What is a Secretarial Audit? 

The Secretarial Audit is a process of checking a company’s compliance with various laws, rules, and regulations, including the Companies Act, Securities Laws, and other applicable legislation. This is carried out by a Company Secretary in Practice (PCS) to make sure that the company has followed all statutory and procedural requirements.

In simple terms, Secretarial Audit meaning can be understood as an independent review of the company to check whether the company is operating in a lawful, ethical, and transparent manner i.e., no wrong practices is being followed.

Section 204 of Companies Act, 2013 

The legal foundation of secretarial audit lies in Section 204 of the Companies Act, 2013. This section mandates certain companies to obtain a Secretarial Audit Report from a practicing company secretary. It is an important part of any company.

Section 204 of the Companies Act, 2013, provides the legal framework for conducting a Secretarial Audit in India. It specifies the companies that must comply, the auditor’s qualifications, and the reporting requirements. Check below for a detailed table providing all key provisions of this section.

Secretarial Audit Applicability

Secretarial Audit applicability is determined by the provisions of Section 204 and the related rules. The following companies are required to conduct a secretarial audit:

1. Listed Companies

All listed companies are mandatorily required to conduct a Secretarial Audit. It is for the betterment of the company only. To check that everything is working properly or not.

2. Public Companies

Every public company has:

• A paid-up share capital of ₹50 crore or more, or
  
  

• A turnover of ₹250 crore or more is required to undergo a secretarial audit.

3. Private Companies

The Secretarial Audit applicability for a private company comes into effect when:

• The company is a subsidiary of a public company falling under the above limits, or
  
  

• When it meets the criteria prescribed under the rules by the Ministry of Corporate Affairs (MCA).

Hence, it can be stated that while private companies are generally exempt, certain large or subsidiary private companies must also comply.

Secretarial Audit Report Applicability

The Secretarial Audit Report's applicability depends on whether the company meets the thresholds specified under Section 204 and the rules.

The report, issued in Form MR-3, should be attached to the Board’s Report and presented to the shareholders in the Annual General Meeting (AGM).
This report assures stakeholders that the company complies with all legal and regulatory requirements.

Appointment of Secretarial Auditor

The appointment of a secretarial auditor is an important step in the audit process. Procedure for appointment is as follows:

1. Board Meeting:
   The company’s Board of Directors must appoint a Practicing Company Secretary (PCS) through a Board Resolution.
   
   

2. Intimation to Auditor:
   The company must obtain written consent from the appointed PCS.
   
   

3. Filing of Form MGT-14 (if applicable):
   Certain companies may need to file this Board resolution with the Registrar of Companies (ROC).
   
   

4. Documentation:
   Maintain records of consent letters, appointment resolutions, and communication with the auditor.
   
   

Note: The appointment is generally made on a financial-year basis, and the auditor’s report must be annexed with the Board’s Report. Knowing all these things is important to work better and understand your surroundings better.

Secretarial Audit Process

The Secretarial Audit process is systematic and involves several stages to ensure comprehensive verification of compliance. Check the description given below carefully to know about these points:

This process ensures a thorough examination of both statutory and procedural compliance.

Scope of Secretarial Audit

Secretarial Audit covers verification of compliance under several laws and regulations, such as:

• The Companies Act, 2013

• Securities Contracts (Regulation) Act, 1956

• Depositories Act, 1996

• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

• Foreign Exchange Management Act (FEMA), 1999

• Other applicable industrial and environmental laws

Additionally, the audit also ensures adherence to:

• Board procedures

• Secretarial Standards (SS-1 and SS-2)

• Corporate governance norms

Note - The above mentioned points are need to be followed by everyone in the company, so that the company can work properly and smoothly.

Secretarial Audit Limit

The Secretarial Audit limit refers to the maximum number of audits a practicing company secretary can undertake in a financial year. As per ICSI guidelines:

• A PCS can conduct up to 10 Secretarial Audits in a financial year, either individually or through a firm. This is important for all companies.

• This limit helps maintain audit quality and ensures adequate time for each engagement.

Role of Company Secretary in Secretarial Audit

The Company Secretary plays an important role in conducting a fair and transparent audit. The key responsibilities include:

• Checking the company’s records and documents

• Identifying non-compliance areas so that actions can be taken

• Advising the management on corrective actions

• Ensuring that the company adheres to all secretarial standards and laws

• Preparing and signing the Secretarial Audit Report (Form MR-3)

Benefits of Secretarial Audit

Implementing a Secretarial Audit provides several advantages to a company:

• It makes sure that the company complies with all applicable laws, rules, and regulations.

• Helps in early detection and correction of non-compliance issues.

• Promotes transparency, accountability, and ethical business conduct.

• Strengthens corporate governance practices within the organization.

• Boosts investor and stakeholder confidence in the company’s operations.

• Minimizes the risk of legal penalties, disputes, and reputational damage.

• Provides management with valuable insights for better decision-making.

• Enhances the overall credibility and reputation of the company in the market.

• Acts as a continuous monitoring tool to maintain long-term compliance discipline.

Penalties for Non-Compliance

If a company fails to comply with the provisions of Section 204 of the Companies Act, 2013, it may face penalties as per the law.

As per Section 204(4):

• The company, every officer in default, and the practicing company secretary who fails to comply may be punished with a fine up to ₹5 lakh.

• Continuous non-compliance can lead to further disciplinary action from ICSI and other regulators.

Note: This underscores the importance of timely completion and submission of the Secretarial Audit Report.

Importance of Secretarial Audit

The importance of secretarial audit lies in its ability to ensure that a company is managed within the framework of law. It provides a structured mechanism to prevent legal violations, enhance transparency, and improve the company’s reputation.

1. Ensures Legal Compliance

Secretarial audit ensures that the company complies with various laws like Companies Act, SEBI Regulations, FEMA, and others, reducing the risk of penalties or litigations. Check all the rules and all.

2. Enhances Corporate Governance

By checking the company’s adherence to governance principles, the audit promotes ethical conduct and accountability.

3. Strengthens Stakeholder Trust

A company that regularly undergoes secretarial audits signals credibility and builds confidence among investors, regulators, and employees.

4. Detects Non-Compliance Early

The audit acts as an early warning system, identifying potential violations before they escalate into major issues.

5. Aids in Decision Making

The findings of the secretarial audit help management make informed decisions and implement better compliance frameworks.

Comparison Between Internal Audit vs. Secretarial Audit

Both internal and secretarial audits play important roles in ensuring a company’s compliance and efficiency. 

While an internal audit focuses on financial and operational performance, a secretarial audit makes sure adherence to legal and regulatory requirements. Check below for a detailed comparison table highlighting their key differences:

ICSI’s Role in Secretarial Audit

The Institute of Company Secretaries of India (ICSI) plays a crucial role in setting the framework and guidelines for conducting Secretarial Audits.
It provides:

• Standard formats for reporting (Form MR-3)

• Guidance notes for practicing company secretaries

• Training and certification programs

• Disciplinary mechanisms for non-compliance

ICSI makes sure that company secretaries maintain professional integrity and adhere to the highest standards while conducting the audit.