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Class Room Series

On SECRETARIAL AUDIT

CS Ranjeet Pandey - FCS, LL.B.

Central Council Member- ICSI

Ranjeet Pandey & Associates

Company Secretaries

Mobile: 09810558049, 011 – 46074119

e-mail: [email protected]

Key Takeaways

Promoters Protection of owner’s stake from being exposed to

unintended regulatory risk.

Management Effective and efficient monitoring of performance of

Compliance Management Team.

Independent

Directors

Mitigation of Regulatory Risk.

Government

Authorities

Reducing the burden in regulating compliance

management.

Investors Confidence booster for existing. Enables

prospective investors to take informed decision.

CS Ranjeet Pandey, Practising Company Secretary

Powers & Duties of SA

Powers & Duties (section 143):

Access of Books of Accounts, etc.

Seeking information and explanation.

Enquire into Loan and Advances, secured or not / Book Entries other financial transactions – terms not prejudicial to Interest of the Company.

Access to records of all subsidiary companies;


Powers & Duties of SA

Powers & Duties (section 143): Continued…

Negative comments / qualifications in SAR should be supported with reasons.

Verify compliances of decision of Board and Shareholders;

Verification of Secretarial Standard;

Form an opinion on True & Fair view in regard to Non-Fin Transactions;

Power to Report Fraud to CG [Section 143(12)] – Non Compliance – fine INR 1 Lac to INR 25 Lac.


Section 141(3): It is desirable that the disqualifications for appointment as prescribed under section 143(3) should be taken care of and following persons shall not be eligible for appointment as SAs: 1) A body corporate except LLP; 2) An officer or employee of the company; 3) A person who is a partner, or who is in the employment, of an officer

or employee of the company; 4) A person, etc. holding any security of or interest in the Company,

etc.; of face value not exceeding One Lac Rupees ; 5) A person, etc. is indebted to the company in excess of Rs. 5 lacs ; or 6) A person, etc. has given a guarantee / security for an amount of Rs. 1

lac;

Eligibility


7) a person or a firm who, whether directly or indirectly, has business relationship with the company, etc. of such nature as may be prescribed;

8) A person whose relative is a director or is in the employment of the company as a director or KMP;

9) A person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than such no of Cos as prescribed by ICSI;

10) A person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.

Eligibility


Applicability of Section 139 to 144:

The provisions related to rotation of auditors, their remuneration, resignation, disqualifications etc. are not applicable to the Secretarial Auditors.

Can a retainer / consultant to the Company act as its Secretarial Auditor, as Section 144 is not applicable to Secretarial Auditors ??

Will holding both the positions not lead to conflict of Interest between both the duties ??

Retainer as SAs


Appointment Process

Appointment Process

Offer - Proposal / Tendering Process

Consent Letter - Proposed Limit for Audits

Chapter XII, Rule 8 – Appointment by Board Resolution

Signing of NDA

Mandate Letter / Engagement Letter


Draft Consent Letter March …., 2015 The Board of Directors …………………………….. Sub: Consent to act as Secretarial Auditor under Section 204 of the Companies Act, 2013.

Please refer to your offer / Advertisement dated…….., on the subject captioned above, we hereby submit our consent to act as Secretarial Auditor under the provisions of Section 204 of the Companies Act, 2013 read with the

Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

In this regard, we hereby state that we are qualified and eligible to be appointed as Secretarial Auditor under the

provisions of Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

We further confirm that if appointed, our appointment shall be within the limits prescribed by ICSI for

maximum number of Secretarial Audits. Thanking you. For ………………. & ASSOCIATES COMPANY SECRETARIES (………………………..) PARTNER

CP No. ………….. CS Ranjeet Pandey, Practising Company Secretary

Engagement Letter

Engagement Letter

Scope Date of

Appointment

Periodicity

Fees, etc.

Confidentiality

Termination


Preparedness for Auditee Company

Identification & Appointment

• Scope

• Frequency

• Timelines

• Resource Person

• Confidentiality

Pre-Audit Preparation

• Document Checklist

• Requisition from other department

• Record update

• Validation

Audit

• Record Room

• Admin Arrangements

• Submit Records

• Response to Inquiry

• Documentation

Post Audit Discussion &

Closure

• Closure of Inquiry

• Taking the issues to other department

• Final Report

• Corrective measures.


Audit Principal & Techniques

Audit Principles

Planning

Team Building &

Briefing

Confidentiality

Skill & Competence

Impartiality

Integrity & Independence

Audit Evidence

Consistency

Audit Principles


Audit Principles – Planning


Finalization of term of Engagement

Nature and Timing of Report or other Communication

Assessment of Policy and Process of Compliance

Identification of significant Audit areas

Matters requiring special attention

Nature and extent of Audit Evidence – its ownership

Involvement of other Auditors / Experts

Allocation of work and co-ordination among staff

Audit Principles - Audit Evidence


Information for arriving at conclusion for forming an opinion

Nature – Original, Minutes, Registers, E-data, Confirmation

Sufficiency & Appropriateness – Quality vs. Quantity

Imp. Factors – Degree of Risk, Internal Control, Control Environment, Materiality, nature or extent of Error, etc.

Reporting the Implication of inability to obtain evidence

Sources – Internal, External or third party, Written Reps, etc.

Process – Inspection, Observation, Enquiry, Confirmation.

Audit Techniques

Examination

Enquiry

Confirmation

Sampling

Compliance Test (ICS)

Substantive Checking

Dependence on other Experts

Analytical Review

Audit Techniques


Audit Process

Audit Process Appointment & Acceptance

Communication to previous Incumbent, if any

Finalization of Audit Plan & Broad framework

Finalization of Audit Team & Team Briefing

Preliminary Discussions, meetings / Surveys

Examination & verification of Records

Test Checks, Enquiry and confirmation

Substantive Checking, if required


Audit Process Analysis of Information

Creating Audit Evidence

Management Representation Letter

Forwarding of audit Summary

Discussion on Observation of Auditors

Submission of Draft Report

Confirmation of Audit Qualifications, if any

Submission of Final Secretarial Audit Report


Form and Contents:

Transfer / Transmission Public Inspection of Books Recording of Resolution by circulation Loans other than mentioned in Register Show Cause Notices Entries in registers made in time All information / documents has been provided; Investors Complaints resolved Registrations of premises under Labour and Industrial Laws Employment of Child and bonded Labour Compliance of Social Security Laws

Management Representation Letter


Drafting of SAR

& Reporting

Drafting of SAR Pre-drafting requisites: Preparing list of statutory provisions applicable to auditee

Company.

Preparing list of industries specific Laws;

Preparing list of secretarial standards applicable to the auditee company

Preparing list of compliance with SEBI Laws;

Comments on composition and constitution of board of directors, the changes therein – may be given as annexure to the Report.


Drafting of SAR

Drafting of SAR should include:

Identifying & reporting good / bad “Corporate Conduct”;

Report “Board Process’ followed and manner of convening and conducting a board meeting should also a part of SAR.

Report / comments on “Compliance Mechanism”.

Comments on “Systems and Processes” of compliance.

Reporting of “Fraud”, if any.

Report aberration and deviations, if any


Drafting of SAR Board Process: Adequate composition of Board;

Board Structure – Selection process, succession planning, etc.

Response to information or clarification on agenda by

director;

Deficiency, if any in the Board System and process – Convening, Agenda Circulation, Conducting, minutes recording, etc.

Recording of Dissenting view, if any;


Drafting of SAR

Compliance Mechanism: Setting of Compliance scope and fixing responsibility;

Reporting of Compliances to the Board;

Monitoring of significant Litigations by or against the Co.

Adequacy of Internal Control System;

Process of reporting of material event impacting Co’s future;

Existence of whistle blower policy;


Sample SAR

SECRETARIAL AUDIT REPORT

For the financial year ended on 31st March, 2015

[Pursuant to section 204(1) of the Companies Act, 2013 and rule No. 9 of the

Companies (Appointment and Remuneration Personnel) Rules, 2014]

To,

The Members,

……………………….Limited

(Address of RO)

We have conducted the Secretarial Audit of the compliance of applicable

statutory provisions and the adherence to good corporate practices by

…………………….Limited (hereinafter called the “Company”). The Secretarial

Audit was conducted in a manner that provided us a reasonable basis for

evaluating the corporate conducts/statutory compliances and expressing our

opinion thereon.


Sample SAR

Based on our verification of ………………………Limited’s books, papers, minute books, forms and returns filed and other records maintained by the Company and also the information provided by the Company, its officers, agents and authorized representatives, during the conduct of Secretarial Audit, we hereby report that in our opinion, the Company has, during the audit period covering the financial year ended on 31st March, 2015 complied with the statutory provisions listed hereunder and also that the Company has proper Board-processes and compliance mechanism in place to the extent, in the manner and subject to the reporting made hereinafter:


Sample SAR We have examined the books, papers, minute books, forms and returns filed and other records maintained by …………….Limited (“the Company”) for the financial year ended on 31st March, 2015, according to the provisions of (hereinafter to be referred as “Act” collectively): i. The Companies Act, 2013 and the rules made there under; ii. Foreign Exchange Management Act, 1999 Foreign Trade Policy and

the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings; and

iii. Securities and Exchange Board of India Act, 1992, as applicable; iv. Listing Agreement entered into by the Company with BSE and

NSE; and v. The Banking Regulations Act, 1949 and rules made thereunder (the

law, which is applicable specifically to the Company, being Banking Company).


Sample SAR

During the period under review the Company has complied with the provisions of the Act, Rules, Regulations, Guidelines, etc. mentioned above subject to the following observations: i. The Company has made disclosure under Securities and Exchange

Board of India (SAST) Regulations, 2011. However, we are unable to comment on the timely disclosure in certain cases, due to absence of adequate supporting proof.

i. The Company has made allotment of equity shares, however

proper stamp duty has not been paid. However, the Company is in the process of moving an application for payment of consolidated stamp duty.


Sample SAR We further report that- As informed by the Company, the Board is having the required balance of Rotational, Non-Rotational, Independent and Women Director and the composition of Board will be as per provisions of the Act on or before 31/03/2015 (the time allowed by MCA for compliance of the provisions). There are no changes in the composition of the Board of Directors during the period under review. Adequate notice has been given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting. Majority decision is carried through unanimously, and therefore, dissenting members’ views are not required to be captured and recorded as part of the minutes.


Sample SAR

We further report that there are adequate systems and processes in the Company commensurate with the size and operations of the Company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines mentioned above at para 3 (i) to (v) and also laws listed herein below: i. The Factories Act, 1948; ii. The Employment Exchange (Compulsory Notification of

Vacancies) Act, 1959; iii. The Payment of Bonus Act, 1965; iv. The Employee Provident Fund Act, 1952 and scheme made

thereunder; v. The Contract Labour Act, 1970 and the rules; vi. The Apprentices Act, 1961; vii. The TN Labour Welfare Fund Rule, 1973;


Sample SAR

We further report that during the audit period there has not been any such activity having a major bearing on the Company’s affairs in pursuance of the above referred laws rules, regulations, guidelines etc.

Place: New Delhi Date: __________2015

For Ranjeet Pandey & Associates

Company Secretaries

CS Ranjeet Pandey

Partner FCS- 5922, CP No.- 6087


Questions ??


CS Ranjeet Pandey, FCS, LL.B. Central Council Member, ICSI RANJEET PANDEY & ASSOCIATES Company Secretaries, New Delhi Tel: 9810558049, 011 – 46074119 E-Mail: [email protected]

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