Secretarial Audit

- A Practical Approach

CS Amit Gupta, Member, NIRC-ICSI

 Disclaimer

 The views expressed are personal views of the presenter and

should not be considered as views/opinion of the ICSI. Further
there may be many more approaches to conduct Secretarial
Audit.
 Contents

• General Introduction
A

• Understanding the Audit Report

B

• Audit Process
C

• Audit Report & Sample qualifications

D

• Creating Audit Record file for peer Review

E

F
• Follow up
 Audit Process

• Home Work
a

• Preparing Audit Program

b

• Interaction with Company

c

• Checking of Records/compliance
d

• Working papers/notes creation

e

• Third Party Reports/management representation

f
 Reporting

• Analysis of data sheet

a

• Testing non compliances on materiality

b

• Drafting qualifications/comments
c

• Report Compilation
d

• Management discussion
e

• Finalizing Report
f
 General Introduction
Applicability

Listed Public Private

Having Paid up Subsidiary of Public

All Companies whose
Limited having
any security is listed share capital
prescribed capital/
on stock exchange => Rs. 50 crores turnover

Having turnover Whose Debentures

=> Rs. 250 crores are listed
 General Introduction

Appointment of Secretarial Auditor

Appointment at Board Meeting on

recommendation of Audit Committee
[S-179(3), 177(4)(i) & R-8(4)]

Filing of MGT - 14

Issue of Appointment Letter

 General Introduction

Tenure of Appointment

No Clarity in the Act as to if appointment has

to be for each year or can be made for more
than one year also
By practice it is presumed that appointment
is for reporting period

And shall come to end on submission of

report to the Board
 General Introduction

When to be Appointed

No mention in the Act

Since SAR is annexure to Board Report &

Scope is so wide

Early is better. So it can be taken up as

continuous activity and spread over year
 General Introduction

Removal/Resignation

No mention in the Act

Since Board is appointing authority, removal

shall also require Board Approval

Resignation can also be submitted/accepted

by Board
 General Introduction

Powers of Secretarial Auditor

To get all assistance and facilities for audit of

secretarial and related records [S-204(2)]

Same powers as of Statutory Auditors under

Section 143

Right of access at all times of relevant

records and ask any officer to provide so
 General Introduction

Duties of Secretarial Auditor

Same duties as of Statutory Auditors under

Section 143

Duty to report fraud to Central Government

[S-143(12)]

Duty to obtain all information and explanations

which to the best of his knowledge and belief were
necessary for the purpose of his audit
 General Introduction

Duty to Report Fraud

If he has sufficient reasons to believe that an offence

involving fraud, is being or has been committed against
the company by officer/employees

Immediately send Report to Board/Audit

Committee seeking reply with 45 days

Auditor to send report with Board replies in F- ADT 4

with in 15 days of receipt of Reply. If Board does not
reply, he shall forward report stating such fact
 General Introduction

Fraud in relation to affairs of a company or

any body corporate, includes
any act, omission, concealment of any fact or abuse of
position committed by any person or any other person with
the connivance in any manner
with intent to deceive, to gain undue advantage from, or to
injure the interests of
the company or its shareholders or its creditors or any other
person, whether or not there is any wrongful gain or wrongful
loss
For Fraud reporting – only frauds committed by officers/
employees are covered
 General Introduction

Liability for fraud

Section Action Who will be penalized
7(5) Fraud in relation to the The person furnishing false or incorrect
registration of a company particulars of any information or
suppressing any material information, of
which he is aware
7(6) Fraud in relation to incorporation Promoters, persons named as the first
of a company directors of the company and the
persons making declaration under clause
(b) of subsection (1) of Section 7 shall
each be liable
34 Criminal liability for Every person who authorizes the issue of
misstatement in prospectus such prospectus
 General Introduction

Liability for fraud

Section Action Who will be penalized
36 Fraudulently inducing persons to The person so inducing
invest money
38(1) Personation (making, abetting, The person so personating
inducing) for acquisition,
subscription, of securities
46(5) Issue of duplicate share Every officer of the company who is in
certificate with intent to defraud default. Further, such person shall also be
liable to fine as specified
140(5) Auditor has acted in a fraudulent The individual or firm. He/it shall not be
manner or abetted or colluded in eligible to be appointed as an auditor of
any fraud by, or in relation to, any company for a period of 5 years from
the company or its directors or the date of passing of the order
officers
 General Introduction

Liability for fraud

Section Action Who will be penalized
143(15) If any auditor, cost accountant The individual shall be punishable with
or company secretary in practice fine which shall not be less than one lakh
do not comply with the rupees but which may extend to twenty-
provisions of sub-section five lakh rupees
143(12) i.e. reporting of fraud
229 Furnishing false statement, Person required to provide an
mutilation, destruction of explanation or make a statement during
documents the course of inspection, inquiry or
investigation, or officer or other
employee as required
 General Introduction

Liability for fraud

Section Action Who will be penalized
339(3) Fraudulent conduct of business Every person who was knowingly a party
of company with intent to to the carrying on of the business in the
defraud creditors of the manner aforesaid
company or any other persons
or for any fraudulent purpose
448 Making a false statement in any Person making such statement
return, report, certificate,
financial statement, prospectus,
statement or other document
required by, or for, the purposes
of any of the provisions of this
Act or the rules made there
under
 General Introduction

Risk for Secretarial Auditor

Section Action Penalty
143(15) If Secretarial Auditor fails to Fine – 1 lacs to 25 lacs
report fraud to Central
Government
448 Make a false statement in Imprisonment - 6 months to 10 years
Secretarial Audit Report. and fine - 1 time to 3 times of fraud
(offence – cognizable, bail only involved.
after giving opportunity to Where fraud involves public interest,
public prosecutor and court is term of imprisonment shall not be less
satisfied that he is not guilty and than three years
not likely to commit offence
during bail)
 General Introduction

Risk for Secretarial Auditor

Section Action Penalty
245(1)(g Class Action Suits As may be determined by tribunal
)
Schedul “discloses information acquired Removal
e II (Part in the course of his professional Fine can go up to Rs.5 Lakhs
–I) of CS engagement to any person
Act, other than the client so
1980 engaging him, without the
consent of such client, or
otherwise than as required by
any law for the time being in
force.”
 General Introduction
Second Schedule (Part – I) of CS Act, 1980

• Disclosure/sharing of information acquired

A

• Certification without examination

B

• Becoming fortune teller

C

• Expressing opinion in respect of Company in which he has

D substantial interest

• Failure to disclose material facts in report

E
 General Introduction
Second Schedule (Part – I) of CS Act, 1980

• Failure to report material misstatement

F

• Gross negligence
G

• Fails to obtain sufficient information

H

• Fails to invite attention to any material departure from

I generally accepted procedure

• Fails to keep money advanced by client separately for using

J the same for intended purpose (Statutory fees etc.)
 General Introduction

Penalty under section 204

(Company, officer or PCS)

1,00,000/-

5,00,000/-
 General Introduction

Fees for Secretarial Audit

Elements of Cost
Man hours
Others
(Partner, Senior, Junior, Trainees)

Back office Client office

Third
Infrastruc Travelling
party
ture etc. / lodging
Data report
Checklist analysis/ Verification
Home work Interaction
preparation Report of records
Preparation
 General Introduction

Report of Secretarial Auditor

Report to be prepared in Form MR – 3 [R-9(2)]

Annexed to the Board Report [S-134(3)]

Board to explain in full in Board Report any

qualification or observation or other
remarks [S-204(3)]
 General Introduction

Comparative Analysis with other Audits

Sr. No. Particulars Secretarial Statutory Cost
1. Governing S – 204 & S – 139 & S – 148 &
Provisions Companies (App and The Companies the Companies
Rem of Managerial (Audit and (Cost records an
Personnel) Rules, Auditors) Rules, Audit) Rules, 2014
2014 2014
2. Applicability Listed companies All Companies Regulated
Public company Overall Turnover
Capital => Rs 50 cr => 50 cr
Turnover => Rs. 250 Ind => 25 cr
cr Unregulated
Overall Turnover
=> 100 cr
Ind => 35 cr
 General Introduction

Comparative Analysis with other Audits

Sr. No. Particulars Secretarial Statutory Cost
3. Appointing Board 1st – Board (with Board
Authority (early appointment in 30 days) (90 days of begin
advisable) Next at AGM of FY)
CAG

4. Remuneratio Audit Committee & Audit Committee, Audit Committee

n Board Board & & Board
Shareholders Ratification by
CAG members
5. Tenure No mention 5 years Yearly
Practice of yearly
appointment
 General Introduction

Comparative Analysis with other Audits

Sr. No. Particulars Secretarial Statutory Cost
6. Form MGT – 14 ADT- 1 CRA -2
(30 days) (15 days) (30 days)
7. Maximum 5 20 Not fixed so far
Audits (Proposed by ICSI)
8. Report MR -3 - CRA -3
9. Disqualificati - S- 141 -
ons
10. Restrictions - Can not provide -
certain services
(S-144)
 Understanding Audit Report

What is Audit

The Auditor perceives and

Auditing is a systematic and
recognizes the propositions
independent examination of
before him for examination,
data, statements, records,
collects evidence, evaluates
operations and performance
the same and on this basis,
(financial or otherwise) of an
formulates his judgment
enterprise for a stated
which is communicated
purpose.
through his audit report.
 Understanding Audit Report
Secretarial Audit Report

Factual
Qualitative Qualifications
Compliance of

Co. Act, SCRA, SEBI, Composition of

Disclaimer
FEMA Depositories Board/ changes

other laws Board process &

Adverse opinion
(Industry specific) decision making

Secretarial Standards,
Listing agreement Adequacy of Systems Qualified
& process to monitor
& ensure compliance (quantifiable/
Events having major of all laws unquantifiable)
bearing
 Understanding Audit Report
Secretarial Audit Report

• Declaration:
• What has been done: The auditor has conducted secretarial
audit of applicable statutory provisions and adherence to
the good corporate practices.
Para 1 • How it has been done: The auditor has conducted
secretarial audit in such a manner that provided reasonable
basis for making evaluation of Corporate conduct, statutory
compliances and expression of opinion thereon.
 Understanding Audit Report
Secretarial Audit Report

• Opinion
• Basis on which opinion given: Verification
of records, information provided by Auditee.
Para 2
• Opinion regarding: Compliance of listed
statutory provisions and existence of proper
Board process and compliance mechanism.
 Understanding Audit Report
Secretarial Audit Report

• Details of verification
• 5 specified laws: Listing of the Act, rules (out of
5) applicable on the Company in respect of
Para 3 which records had been verified.
• Other laws: Listing of other laws applicable on
respective Industry in respect of which records
had been verified.
 Understanding Audit Report
Secretarial Audit Report

• Details of verification
• Secretarial Standards: Mention of Secretarial
Standards applicable on the Company, which
Para 4 had been verified.
• Listing agreement: Mention listing agreement
with stock exchange, applicable on the
Company, which has been verified.
 Understanding Audit Report
Secretarial Audit Report
 Understanding Audit Report
Secretarial Audit Report

• Further opinion:
• Board constitution/changes: Board is duly constituted with
proper balance of requisite category of directors and changes
were made in compliance of law.
Para 6 • Board process: BM notice, agenda, agenda notes were sent at
least 7 days in advance and system exist for seeking further
information/clarification before meeting.
• Decision making: Decisions are taken through majority and
dissent is duly recorded.
 Understanding Audit Report
Secretarial Audit Report

• Further opinion:
• Compliance Management System: Adequacy
of systems and process, considering the size
Para 7 and operations of the Company, to monitor
and ensure compliance of applicable laws.
(includes all laws not only Industry specific,
but also labour etc.)
 Understanding Audit Report
Secretarial Audit Report
 Understanding Audit Report
Secretarial Audit Report

• Further Opinion:
Para 9 • Specific Events/actions: List of
specific events/actions having
major bearing on the affairs.
 Audit Process

Home Work

Third Party
Reports/mana Preparing
gement Audit Program
representation

Working
Interaction
papers/notes
with Company
creation

Checking of
Records/comp
liance
 Audit Process
Objectives of Homework
• Identification of trigger points for applicability of laws viz.
A Geographical locations, no of employees, capital, turnover etc

• Checking the applicability of 5 specific laws/rules. Preparing

B list of Industry specific applicable laws and others.

• Preparing list of events and filtering of events/actions having

C bearing on Companys’ affairs

• Preparing Company profile and data sheet

D

• Board composition and changes

E
 Audit Process
Objectives of Home work
• Understanding Compliance management system
F

• Assessment of Board Process

G

• Website disclosures
H

• Understanding the gaps & preparing questionnaire

I

• List of documents/information required

J
 Audit Process
Documents/Returns etc. Required
Minutes/Agenda/
Audited Financial Un-audited financial Returns/forms etc.
notices/dispatch
Statutory Registers Statements for last statement for the filed with statutory
proof/ attendance
3 years audit period authorities
register

Internal Auditor Secretarial Audit

Non compliance, Report of Internal
News paper report for audit reports/ Due
prosecution letter/ Auditors for last 3
Publication period Diligence Reports
orders years
for past 3 years

Declarations Compliance
Statutory records /
regarding key Compliance officer/ Management
returns under other Organogram
parameters that officer in default System/ alert
acts
triggers applicability system

Agreements, IPR’s, Domain

Third party Audit Various Committee Group Companies,
Technical registration, IT
reports charters, policies associates, JV’s
collaborations etc Servers safety etc.
 Audit Process

Home Work

Know your Client Company

Google/
MCA/SE/Co Website
Peer Co Websites

Geographic Locations/
Preparing Basic Co. data Create list of applicable
Industry/Structure/
& Questionnaire laws
Sector/Segment (GLISSS)
 Audit Process

List of Applicable Laws

General Laws Applicable on all

Corporate Structure
Listed
Labour Sector
Unlisted
Manufacturing Trading Service
Taxation PSU
 Audit Process
Various Segments

Sugar/Alcohol Power Telecommunication Mining Tourism & Hotel

Capital Market &

Textile Financial Insurance Financial Service Banking & NBFC
Intermediary

Information Drugs & Agro/Food

Retail/Wholesale FMCG
Technology Pharmaceuticals Processing

Engineering Infrastructure Capital Goods Leather Leather

 Audit Process

Other factors affecting applicability of Law

Risk Involved

Special
Zones/Act

No of
Employee

Event
Based
 Audit Process

Examples of Labour Laws

Factories Act, 1948 Contract Labour Regulation & Abolition Act, Fatal Accidents Act, 1855
1970
Workmen Compensation Act, 1923 Apprentice Act, 1961 The Employers’ Liability Act, 1938

Minimum Wages Act, 1948 Maternity Benefit Act, 1961 The Personal Injuries (Compensation Insurance)
Act, 1963
Payment of Wages Act, 1936 Trade Union Act, 1926 The Personal Injuries (Emergency Provisions)
Act, 1962
Equal Remuneration Act, 1976 Employment Exchange Act, 1959 The Sales Promotion Employees (Condition of
Service) Act, 1976
Industrial Dispute act, 1947 Prevention of Sexual Harassment Guidelines The Weekly Holidays Act, 1942

Payment of Bonus Act, 1971 Shops & Establishment Act The Children (Pledging of Labour) Act, 1938

Payment of Gratuity Act, 1972 Hazardous Waste Handling & Management The Bonded Labour Systems (Abolition) act,
Rules, 1989 1976
Employees Provident Fund & Miscellaneous Child Labour (Prohibition & Regulation) Act, Retrenchment Compensation Act
Provisions Act, 1952 1986
Employees State Insurance Act, 1948 The Industrial Employment (Standing Orders) The Labour Welfare Fund Act
Act 1946
Children (Pledging of Labour) Act 1933 The Labour Laws (Exemption from furnishing Interstate Migrant Workmen (Regulation of
Returns and Maintaining Registers by certain Employment & Condition of Service), Act,
Establishments) Act, 1988 1979
 Audit Process

List of Applicable Laws

Corporate Laws Corporate Laws Taxation
The Companies Act, 1956/2013 Accounting Standards Income Tax Act, 1961

Listing Agreement Secretarial Standards Central Sales Tax Act/VAT

Securities Contract Regulation Act 1956 Costing Standards Central Excise Act

SEBI Act, Regulations & Guidelines SICA Service Tax

Depositories Act, 1996 Industrial Development & Regulation Act, 1951 Professional Tax Act

Collection of Statistics Act, 1953

Micro, Small & Medium Enterprises Devel. Act,

2006
 Audit Process

List of Applicable Laws

Environment Related General Industry Hazardous Industries
The Environment Protection Act, 1986 Industrial Development & Regulation Act, 1951 Boilers Act, 1923

Water Act, 1981 Motor Vehicles Act, 1988 Explosives Act, 1884

Air Act, 1981 Collection of Statistics Act, 1953 Petroleum Act, 1934

The Energy Conservation Act, 2001 Research & Development Cess Act Dangerous Machines (Regulation) Act 1983

Electricity Act, 2003 Information Technology Act, 2000 Chemical Accidents (Emergency Planning,
prepardness & Response) Rules, 1996
State Electricity Acts Sales of goods Act, 1930 Insecticides Act 1968

Water Cess Rules, 1977 Standards of Weights & Measurement Act, Poisons Act 1919
1976
Export (Quality Control and Inspection) Act,
1963
 Audit Process

List of Applicable Laws

Event Based Event Based Specific Industry
Indian Contract Act, 1872 The Customs Act, 1962 The Limestone and Dolomite Mines Labour
Welfare Fund Act, 1972
Indian Stamp Act, 1899 The Consumer Protection Act, 1986 The Iron Ore Mines, Manganese Ore Mines &
Chrome Ore Mines Labour Welfare Fund Act,
1976
Motor Vehicles Act, 1988 The Competition Act The Cine Workers Welfare Fund Act, 1981

Negotiable Instruments Act, 1881 Conservation of Foreign Exchange and Motor Transport Workers Act, 1961
Prevention of Smuggling Activities Act, 1974

Trademark Act, 1999 Prevention of Money Laundering Act, 2002 The Mica Mines Labour Welfare Fund Act, 1946

Copy Right Act. 1957 Sales Promotion Employees (Conditions of

Service) Act, 1976
Designs Act 2000

FEMA, rules, regulations etc.

 Audit Process

List of Applicable Laws

Sugar Industry Drugs Industry Tobacco Industry
Sugar Cess Act, 1982 Pharmacy Act, 1948 Tobacco Board Act, 1975

Levy Sugar Price Equalization Fund Drugs and Cosmetics Act, 1940 Tobacco Cess Act, 1975
Act, 1976
Food Safety And Standards Act, 2006 Drugs and Magic Remedies Beedi and Cigar Workers (Conditions
(Objectionable Advertisement) Act, of Employment) Act, 1966
1954
Essential Commodities Act,1955 Narcotic Drugs and Psychotropic Beedi Workers Welfare Cess Act,
Substances Act, 1985 1976
Sugar Development Fund Act, 1982 Food Safety And Standards Act, 2006 Beedi Workers Welfare Fund Act,
1976
Export (Quality Control and Indian Boilers Act, 1923 Cigarettes and Other Tobacco
Inspection) Act, 1963 Products (Prohibition of
Agricultural and Processed Food Advertisement and Regulation of
Products Export Act, 1986 Trade and Commerce, Production,
Indian Boilers Act, 1923 Supply and Distribution) Act, 2003
(COPTA)
 Audit Process

List of Applicable Laws

Power Industry Gas Industry IT Industry
The Electricity Act, 2003 Petroleum and Minerals Pipelines The Information Technology Act,
(Acquisition of Right of User Inland) 2000
Act, 1962
National Tariff Policy Explosives Act, 1884 The Special Economic Zone Act, 2005

Essential Commodities Act, 1955 The Oilfield ( Regulation & Policy relating to Software
Development) Act , 1948 Technology Parks of India and its
regulations
Explosives Act, 1884 Petroleum and Natural Gas The Export and Import Policy of India
Regulatory Board Act, 2006
Indian Boilers Act, 1923 The Petroleum Act, 1934 The Indian Copyright Act, 1957

Mines Act, 1952 The Oil Industry( Development) Act

1974
Mines and Mineral (Regulation and The Mines Act, 1952
Development) Act, 1957
Indian Boilers Act, 1923
 Audit Process

List of Applicable Laws

Petroleum Industry Petroleum Industry Banking Industry
Petroleum and Minerals Pipelines The Territorial Waters, Continental The Banking Regulation Act 1949
(Acquisition of Right of User Inland) Shelf, Exclusive Economic Zone And
Act, 1962 Other Maritime Zones Act, 1976
Explosives Act, 1884 Merchant Shipping Act, 1983 Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970
Petroleum and Natural Gas Offshore Areas Minerals Regional Rural Banks Act, 1976
Regulatory Board Act, 2006 (Development and Regulation) Act,
2002
The Petroleum Act, 1934 Indian Boilers Act, 1923 Information Technology Act, 2000

The Oil Industry( Development) Act Prevention of Money Laundering Act,

1974 2002
Mines Act, 1952 Credit Information (Companies
Regulation Act), 2005
Mines and Mineral (Regulation and SARFAESI, 2002
Development) Act, 1957
Securities Transaction Tax Act 2004
 Audit Process

List of Applicable Laws

Broadcast Industry Broadcast Industry Broadcast Industry
The Telecom Regulatory Authority of The Standard of quality of service
India Act, 1997 Programme and Advertising Codes
regulations -23.8.2009
The Telecommunication (Broadcasting and
Downlinking Guidelines dated Compendium 2012 (CRS
Cable Services) Interconnection Regulation,
2004 15/12/2009 Guidelines)
The Indian Wireless Telegraphy Act, Guidelines for providing Headend-
1933 Compendium 2011 Community
in-the-Sky (HITS) Broadcasting
Radio Stations in India
Service in India
Cable Television Networks CAS Areas Tariff Order-31.08.2006 Policy Guidelines for setting up
(Regulation) Act,1995 Community Radio Stations in India
Compulsory transmission of
Sports Broadcasting Signals
Advisory to TV Channels on quiz Doordarshan and Parliament
(mandatory Sharing with Prasar
based game shows Channels on satellite/ cable
Bharati) Act, 2007
Television Network.
 Audit Process

List of Applicable Laws

Broadcast Industry Broadcast Industry Broadcast Industry
Guidelines to regulate child Carrying illegal TV Channels in
The Prasar Bharati (Broadcasting violation of Downlinking policy
participation in TV serials, reality
Corporation of India) Act -1990 guidelines in Cable dth Service
shows and advertisements
Policy guidelines for IPTV Service in
India
Channels to be compulsorily carried
by IPTV operators
 Audit Process

List of Applicable Laws

Film Industry Media Industry
The Standard of quality of service
Press Council Act, 1978
regulations -23.8.2009
Policy for Certification of Films for Registration of Newspapers
Film Festivals (Central) Rules 1956
The Cinematograph Act, 1952 and Press & Registration of Books Act
Rules 1867
The Parliamentary Proceedings
Draft Cinematograph Bill, 2010
(Protection of Publication) Act, 77
Certification of Film Songs, Film
Promos etc for Cable Service
 Audit Process

Preparing Questionnaire

To update basic To identify List of

Objective - 1

Objective - 2

Objective - 3
data sheet and major events documents,
confirm key during the records,
parameters that period under returns, etc
triggers the report required for
applicability of audit
specific law
 Audit Process

Preparing Audit Program

To create Audit To divide entire To draw time

Team

Schedule
Work Allocation
team. work in to parts schedule. Time
Appropriate and assign allocation to
mix of responsibilities each type of
Senior/junior to team leaders work
and trainees.
Back office to
create check
lists
 Audit Process

Master Check list creation

For Checking Applicability

For Specific Events

For General Compliance

Corporate Practices
Master Master Master Corporate
check list check list of Check list of practices in
for all laws (non specific respect of
applicability event event based events on
of particular based) compliances which law is
law silent
 Audit Process
Master Sample Check List (Applicability Test)

S Name of Applicability If Primary Secondary Remarks

r the Act factors Company Evidence Evidence
N fulfils
o applicabili
ty factors
1 The Must be Yes Muster Pay roll
Factories manufacturing roll/
Act, 1948 unit Annual
Employs at Report
least 10
workers
(without aid of
power) or 20
workers (with
power)
 Audit Process
Master Sample Check List (Applicability Test)

S Name of Applicability If Primary Secondary Remarks

r the Act factors Company Evidence Evidence
N fulfils
o applicabili
ty factors
2 ESI Act, Must be non Yes Muster Pay roll
1948 seasonal roll/
factory Annual
Employs at Report
least 10
workers
 Audit Process
Sample Check List (Increase in authorised Share capital)
Event Date – 25.01.2015

S Details Due Compliance Primary Secondary Remarks

r Date Date Evidence Evidence
N
o
1 Notice 24.01.15 30.12.14 Dispatch Email/Spe Consent not
convening Register ed Post/ available
Board meeting Regd. Post
2 Board Meeting 01.01.15 01.01.15 BM Attendanc
Minutes e Register
3 Convening of 01.01.15 03.01.15 Dispatch Email/Spe Shorter
EGM Register ed Post/ notice
Regd. Post consent of
all available
 Audit Process
Sample Check List (Increase in authorised Share capital)
Event Date – 25.01.2015

S Details Due Compliance Primary Secondary Remarks

r Date Date Evidence Evidence
N
o
4 EGM 25.01.15 25.01.15 EGM Attendanc
Minutes e Register
5 SH7 24.02.15 27.01.15 Filing Updated MGT14 also
Receipt & master to be filed
form data
6 Verification of AOA SR Required.
AOA Alteration in
AOA was
required
 Audit Process

Interaction with Company

Comfort that
you are not
blood hound

Fill the Gaps

& affirm Co-
applicability ordination
of laws
 Audit Process

Checking of Records/Compliances

Listing of All
events

Factual
verification Quality
of assessment
compliance
 Audit Process

Audit Techniques

Detailed

Experts
Examination Sampling
opinion

Confirmati
on
 Audit Process

Factors responsible for Sampling

Compliance
Factual/
Materiality system/ Risk
qualitative
internal control
 Audit Process

Preparing Working Papers

For analysis of
factual compliance
& quality
assessment

For seeking
further
Records for
clarifications/
Peer Review
discussion with
management
 Audit Process

Third Party Reports/Management Representation

Areas those are

covered under
separate Audit

Due to
Areas for
geographic
which you
reasons its not
don’t have
feasible to do
expertise
yourself
 Audit Report

Analysis of
data sheet
prepared

Testing non
Finalizing
compliance on
Report
materiality

Management Drafting
discussion qualifications

Report
Compilation
 Audit Report
Secretarial Audit Report

Factual
Qualitative Qualifications
Compliance of

Co. Act, SCRA, SEBI, Composition of

Disclaimer
FEMA Depositories Board/ changes

other laws Board process &

Adverse opinion
(Industry specific) decision making

Secretarial Standards,
Listing agreement Adequacy of Systems Qualified
& process to monitor
& ensure compliance (quantifiable/
Events having major of all laws unquantifiable)
bearing
 Audit Report

Secretarial Audit Report

If anything can be added in MR-3, provided in rule 9 of the

Companies (Appointment and Remuneration of Managerial
Personnel) Rules 2014

If MR-3 disclosures are sufficient to protect the interest of

Auditors

If not. Then what to do?

 Audit Report

Annexure to Secretarial Audit Report

To,
The Members,
XYZ Limited

Our Report of even date is to be read along with this letter.

1. Maintenance of secretarial record is the responsibility of the management of the

Company. Our responsibility is to express an opinion on these secretarial records
based on our audit.
 Audit Report

Annexure to Secretarial Audit Report

2. We have followed the audit practices and process as were appropriate to obtain
reasonable assurance about the correctness of the contents of the secretarial
records. The verification was done on test basis to ensure that correct facts are
reflected in secretarial records. We believe that the processes and practices, we
followed provide a reasonable basis for our opinion.
3. We have not verified the correctness and appropriateness of financial records and
books of accounts of the Company.
4. Where ever required, we have obtained the management representation about
the compliance of laws, rules and regulations and happening of events etc.
 Audit Report

Annexure to Secretarial Audit Report

5. The Compliance of the provisions of Corporate and other applicable laws, rules,
regulations, standards is the responsibility of management. Our examination was
limited to the verification of procedure on test basis.
6. The Secretarial Audit Report is neither an assurance as to the future viability of the
Company nor of the efficacy or effectiveness with which the management has
conducted the affairs of the Company.

For ABC & Co.

Company Secretaries
Date:
Place:
 Audit Report

Audit Qualifications

Firmness/
Simple/ Persuasive/
Clear/ Brevity/ Vague
Verbosity to concise Not conceal
unambiguous comments to
be avoided material facts
be avoided
 Audit Report

Audit Qualifications - Samples

During the period under review the Company has complied with the provisions of the
Act, rules, regulations, guidelines, standards etc. mentioned above, except to the
extent as mentioned below:
1. In respect of issue of further shares Company did not pass a special resolution
before allotment of shares to persons other than existing members.
2. The Company could not spend the sum allocated toward CSR corpus. However the
Company has constituted the CSR committee and its constitution was as per rules.
3. The Company has filed Form CHG -1, with delay of 120 days, for registration of
charge on vehicle purchased in the name of the Company on loan from SBI.
4. The Company has given loan of Rs. 10 lacs to M/s ABC P Ltd in which Mr. A,
director of the Company is director in violation to the provisions of section 185 of
CA, 2013. However the same has been received back.
 Audit Report

Audit Qualifications - Samples

5. Form DIR 12 regarding appointment of Mr. A as Director was filed with delay of 60
days.
6. The Company has not appointed Independent Directors up till 31.03.2015.
However as on date of issue of report the Board of the Company has appointed 3
Independent Director, subject to the approval of the Shareholders.
7. The Company has not filed Form DIR 12 in respect of vacation of office of director
of Mr. B, due to non attending of meeting during 12 month w.e.f. 01.04.2014 in
terms of the provisions of section 167(1)(b) of the Act.
8. The Company needs to improve its compliance management and alert system to
avoid delays in filing of forms/returns.
9. We are not able to make comments in respect of Nagpur unit started w.e.f.
01.01.2015, as no documents could be provided by the Company.
 Audit Report

Compliance of other Laws applicable to the Company

Section 205: Functions of Company Secretary

1. The functions of Company Secretary shall include,—
(a) to report to the Board about compliance with the provisions of this Act, the
rules made there under and other laws applicable to the company;
(b) to ensure that the company complies with the applicable secretarial standards;
(c) to discharge such other duties as may be prescribed.

(2) The provisions contained in section 204 and section 205 shall not affect the duties
and functions of the Board of directors, chairperson of the company, managing
director or whole-time director under this Act, or any other law for the time being
in force.
 Audit Report

Compliance of all Laws applicable to the Company

Section 134(5)(f) – Directors Responsibility Statement

The directors had devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems were adequate and
operating effectively.
 Audit Report

Compliance of all Laws applicable to the Company

Clause 49 of the Listing Agreement

The Board shall periodically review compliance reports of all laws applicable to
the company, prepared by the company as well as steps taken by the company to
rectify instances of non compliances.
 Audit Report

Advantage - other Laws applicable to the Company

Opportunity to become
Industry specialist

Comfort to
Management /ID

Value Addition
 Records file

Contents of Record File

Evidences
regarding
Evidences of Management
qualititative Parameters
non Working Representatio
comments/ on which List
compliances/ Sheets/ Check n/ Third Party
supporting on of Applicable
negative Lists Reports/
which laws prepared
remarks certificates
opinions are
based
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Create a niche over others

Share Encourage
informal Identify and Discuss management
report with indicate areas concept of to take help Follow up and
management where Corporate of IT to create offer your
regarding improvement Compliance Compliance services
Compliance is required Management tracker/alerts
health / records
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