How do I prepare for a secretarial audit in my company? A Complete Guide

The mere mention of an “audit” can send a wave of stress through any business owner. It often brings to mind long hours, mountains of paperwork, and the fear of uncovering costly errors. However, when you prepare for a secretarial audit with a clear plan, this daunting task transforms into a valuable health check for your company’s corporate governance. A secretarial audit is essentially a comprehensive review to ensure your company is complying with the complex web of corporate and economic laws. For companies in India, it’s not just good practice—it’s often a legal necessity. This guide will provide you with a clear, step-by-step roadmap for effective secretarial audit preparation in India, helping you navigate the process smoothly and confidently, ensuring your business remains compliant and builds trust with stakeholders.

Understanding the Scope: What Does a Secretarial Audit Actually Cover?

Before you can prepare, you must understand what the auditor is looking for. A secretarial audit is not a financial audit; its focus is on compliance and governance. The Practicing Company Secretary (PCS) conducting the audit will meticulously examine your company’s records to verify adherence to a wide range of legal provisions. Understanding the secretarial audit requirements for companies is the first step towards a successful outcome. The goal is to get an independent verification that the company has robust systems and processes to meet its legal and procedural obligations.

Key Laws and Regulations Under Scrutiny

An auditor’s review is primarily centered around a set of core laws. While the exact list can vary based on your industry, the following statutes are almost always under the microscope:

The Companies Act, 2013: This is the foundational law. The audit will cover everything from the company’s incorporation documents to board meeting procedures and statutory filings.
Securities Contracts (Regulation) Act, 1956 (SCRA) and SEBI Act, 1992: For listed companies, compliance with these acts and the various regulations issued by the Securities and Exchange Board of India (SEBI) is paramount.
Depositories Act, 1996: This is relevant for companies whose securities are held in dematerialized form. The auditor will check compliance with regulations related to depositories like NSDL and CDSL.
Foreign Exchange Management Act, 1999 (FEMA): If your company deals with foreign investment (FDI), overseas investment (ODI), or other foreign exchange transactions, your FEMA compliances will be thoroughly checked.
Other Sector-Specific Laws: The audit will also extend to laws specific to your company’s industry. For example, a banking company will be checked for compliance with the Banking Regulation Act, or an insurance company with IRDAI regulations.

Core Compliance Areas in Focus

Beyond the specific laws, the auditor will examine the day-to-day functional and procedural aspects of your company’s governance. These are the practical areas where compliance is either met or missed:

Board and General Meetings: The auditor will review all records related to meetings of the Board of Directors, its committees (like the Audit Committee or Nomination and Remuneration Committee), and general meetings of shareholders. This includes checking if proper notices were sent, agendas were circulated, quorum was present, minutes were recorded accurately, and resolutions were passed correctly.
Statutory Registers: Every company is required to maintain several statutory registers. The audit involves a physical verification of these registers—such as the Register of Members, Register of Directors and KMP, Register of Charges, and Register of Loans and Investments—to ensure they are complete, accurate, and up-to-date.
ROC Filings: The auditor will scrutinize all forms and returns filed with the Registrar of Companies (ROC). This includes the timeliness and accuracy of key annual filings like Form MGT-7 (Annual Return) and Form AOC-4 (Financial Statements), as well as event-based filings for changes in directorship (DIR-12), creation of charges (CHG-1), or alteration of share capital (SH-7).
Dividend Declaration and Payment: If the company has declared a dividend, the entire process will be reviewed. This includes checking for compliance with the procedures for declaration, ensuring timely payment to shareholders, and verifying the transfer of any unpaid dividend amounts to the Investor Education and Protection Fund (IEPF).
Corporate Social Responsibility (CSR): For companies meeting the CSR applicability criteria, the auditor will examine the composition of the CSR Committee, the CSR policy, and the records of expenditure to ensure the company has met its obligations.

The Ultimate Step-by-Step Guide for Secretarial Audit India

Now that you understand the scope, let’s dive into the actionable steps. Following this structured approach will simplify the secretarial audit process for companies and help you manage it efficiently. This guide explains how to prepare for a secretarial audit in India from start to finish.

Step 1: Appoint a Practicing Company Secretary (PCS)

The very first step is the formal appointment of an auditor. According to the Companies Act, 2013, a secretarial audit can only be conducted by a member of the Institute of Company Secretaries of India (ICSI) who holds a certificate of practice—a Practicing Company Secretary (PCS). You cannot appoint your in-house Company Secretary for this role to ensure impartiality.

The appointment process is straightforward:

Pass a Board Resolution: The Board of Directors must pass a resolution in a duly convened board meeting to appoint the PCS.
File Form MGT-14: A copy of this board resolution must be filed with the Registrar of Companies (ROC) within 30 days of passing it, using the e-form MGT-14.

Step 2: Assemble Your Company Secretarial Audit Checklist

Having a comprehensive checklist is the single most effective tool for preparation. It acts as your internal guide, ensuring you don’t miss any crucial documents. Here is a detailed company secretarial audit checklist to get you started:

Corporate Records:
- [ ] Updated Memorandum of Association (MoA) and Articles of Association (AoA).
- [ ] Certificate of Incorporation and Certificate of Commencement of Business.
- [ ] Complete set of Statutory Registers (Register of Members, Debenture Holders, Directors & KMP, Charges, Related Party Transactions, etc.).
- [ ] Minutes Books for Board Meetings, Committee Meetings (Audit, NRC, CSR), and General Meetings (AGM/EGM) for the entire financial year under audit.
- [ ] Attendance sheets for all meetings.
Filings & Forms:
- [ ] Copies of all e-forms filed with the ROC during the year (e.g., MGT-7, AOC-4, DIR-12, CHG-1, PAS-3).
- [ ] Copies of challans/receipts for payments made to regulatory authorities.
- [ ] Stamped share certificates issued during the year and related transfer deeds or transmission documents.
- [ ] Declarations of interest received from directors (Form MBP-1).
Financials:
- [ ] Copy of the audited financial statements for the financial year.
- [ ] Board’s Report and Directors’ Report, including all mandatory annexures.
- [ ] Proof of dividend payment and details of any amount transferred to the Investor Education and Protection Fund (IEPF).
Other Compliances:
- [ ] Details of any foreign direct investment (FDI) or overseas direct investment (ODI) and related filings under FEMA.
- [ ] Details of borrowings from directors, members, banks, or financial institutions.
- [ ] CSR policy, committee meeting minutes, and proof of expenditure (if applicable).
- [ ] Copies of any licenses or registrations under sector-specific laws (e.g., FSSAI, IRDAI, RBI).

Step 3: Gather and Organize All Required Documents

With your checklist in hand, the next step is to collect and organize all the necessary paperwork. Procrastination is your enemy here. Create a dedicated physical or digital “audit folder.” Organize all documents systematically, preferably chronologically and by category (e.g., a sub-folder for Board Meetings, ROC Filings, Statutory Registers, etc.). A well-organized set of documents not only makes your job easier but also leaves a positive impression on the auditor, indicating a well-managed company. This simple step can significantly reduce the time the auditor spends at your office.

Step 4: Conduct a Pre-Audit Internal Review

Don’t wait for the external auditor to find problems. Use the checklist from Step 2 to conduct your own internal review. Go through each item and tick it off. This self-assessment is incredibly valuable because it helps you identify gaps, errors, or non-compliances ahead of time. For example, you might discover that a statutory register hasn’t been updated for months or a required form was filed late. This gives you a crucial window to rectify these issues, regularize them by paying any applicable late fees, and prepare a clear explanation for the auditor.

Step 5: Designate a Point of Contact and Cooperate

To avoid confusion and ensure a smooth flow of information, appoint a single person from your team to be the primary coordinator with the secretarial auditor. This is typically the Company Secretary, a director, or a senior compliance officer. This individual will be responsible for handling all queries from the auditor and providing them with the required documents and explanations. Full and transparent cooperation is key. Providing timely and accurate information will help the auditor complete their work efficiently and foster a positive working relationship.

Best Practices for a Seamless Secretarial Audit

Going through the steps will get you through the audit. But adopting certain best practices can transform it from an annual chore into a strategic advantage. Here are some pro-tips that reflect the best practices for secretarial audits in India.

Maintain Compliance Year-Round, Not Just at Year-End

The most common mistake companies make is treating compliance as a year-end activity. This “scramble-to-comply” approach leads to errors, stress, and potential penalties. The best practice is to view compliance as a continuous, year-round process. Maintain your records and registers in real-time. File forms as and when events occur, not just before the deadline. This proactive approach ensures you are always audit-ready. Services like those offered by TaxRobo Audit Service can help you manage your compliance calendar effectively, ensuring nothing falls through the cracks.

Digitize Your Statutory Records

In today’s digital age, relying solely on physical registers and paper files is inefficient and risky. Digitizing your statutory records offers numerous advantages. It makes them easily accessible from anywhere, ensures secure storage and backup, and allows for quick and efficient sharing with auditors. A well-maintained digital repository of all minutes, registers, and filings can drastically cut down the time and effort required for an audit.

Understand the Audit Report (Form MR-3)

After the audit is complete, the PCS will issue their findings in a prescribed format known as Form MR-3. It’s crucial for the Board of Directors to understand this report. The auditor can make:

Observations: Suggestions for improving processes, even if no law has been broken.
Qualifications or Adverse Remarks: These are serious and indicate specific instances of non-compliance with the law.

Any qualification or adverse remark in the secretarial audit report must be explained by the Board in its own Board’s Report. This transparency is mandatory. You can view the official format on the Ministry of Corporate Affairs (MCA) website.

Conclusion

A secretarial audit is a powerful tool for strengthening your company’s governance framework. By understanding its scope, meticulously following a preparation plan, using a comprehensive checklist, and organizing your documents, you can turn this legal requirement into an opportunity. A clean audit report not only safeguards the company and its directors from penalties but also enhances its reputation among investors, lenders, and other stakeholders. With this guide, you can confidently prepare for a secretarial audit and ensure your company remains a model of corporate compliance and good standing.

Navigating the complexities of a secretarial audit can be challenging. Let TaxRobo’s experts guide you through every step of your secretarial audit preparation in India. Contact us today for a TaxRobo Online CA Consultation Service!

Frequently Asked Questions (FAQs)

1. Which companies are required to get a secretarial audit?

According to Section 204 of the Companies Act, 2013, a secretarial audit is mandatory for the following categories of companies:

Every listed company.
Every public company having a paid-up share capital of ₹50 crore or more.
Every public company having a turnover of ₹250 crore or more.
Every company having outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more.

2. What are the consequences of negative remarks in a secretarial audit report?

Qualifications or adverse remarks in the report are significant red flags. The Board of Directors is legally required to provide a detailed explanation for these remarks in its Board’s Report. This can negatively impact investor confidence and the perception of lenders. Furthermore, it can attract scrutiny from regulatory bodies like the Registrar of Companies (ROC), SEBI, or RBI, potentially leading to further investigation and penalties for non-compliance.

3. How is the secretarial audit report used?

The secretarial audit report (Form MR-3) is a public document. It must be attached to the Board’s Report, which is circulated to all shareholders before the Annual General Meeting (AGM). It is also filed with the ROC along with the annual financial statements. Banks, financial institutions, and potential investors often review this report as part of their due diligence process before making lending or investment decisions.

4. Can our internal Company Secretary conduct the audit?

No. The law explicitly mandates that a secretarial audit must be conducted by an independent Practicing Company Secretary (PCS) who is not in the employment of the company. This requirement ensures that the review is objective, impartial, and unbiased, providing a true and fair view of the company’s compliance status.

Prepare for Secretarial Audit: A Quick Company Guide