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  • GUIDANCE NOTE

    ON

    SECRETARIAL AUDIT

    ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 tel 011-4534 1000, 4150 4444 fax +91-11-2462 6727 email info@icsi.edu website www.icsi.edu

    Release 1.4

  • (ii)

    Release 1.4, May 2018

    © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

    Copyright: - The Institute of Company Secretaries of India. All rights reserved. No part of this Publication may be translated or copied in any form or by any means without the prior written permission of The Institute of Company Secretaries of India.

    Disclaimer

    Although due care and diligence have been taken in the publication of this book, the Institute shall not be responsible for and loss or damage, resulting from any action taken on the basis of the contents of this book. Any one wishing to act on the basis of the material contained herein should do so after cross checking with the original source.

    Published by: THE INSTITUTE OF COMPANY SECRETARIES OF INDIA ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 tel 011-4534 1000, 4150 4444 fax +91-11-2462 6727 email info@icsi.edu website www.icsi.edu

    Laser Typesetting by Delhi Computer Services, Dwarka, New Delhi Printed at : Chandu Press

  • (iii)

    PREFACE TO THE FOURTH EDITION

    “Companies are recognising that failure in many non-financial areas can heavily damage the

    bottom line, perhaps irreparably.”

    ~ Beyond the Numbers (KPMG 2000)

    Talk of success and failure in non-financial areas and the thought of a strong audit mechanism is inevitable. The concept of Secretarial Audit, an audit of non-financial compliances required under the applicable laws in a company, was introduced to cover for this requirement. The term got its due recognition in the Companies Act, 2013 wherein it was made mandatory for the listed companies and a specified set of companies on the basis of their financials. That coupled with the present status of utmost significance of Secretarial Audit goes a long way in reposing and reiterating the faith of the Regulatory authorities upon not only the mechanism of such a thorough audit of non-financial compliances but also in the brigade of professionals exclusively entrusted with the honourable task of carrying out such an audit both diligently and judiciously, i.e., the Company Secretaries in practice. Going back to the basics, since the Board of the companies own the overarching responsibility of ensuring transparent, ethical and responsible governance of the company, it is important that the Board processes and compliance mechanisms of the company are robust and secretarial audit ensures that the company has complied with the legal and procedural requirements and that the Board and other processes and compliance mechanisms are robust enough. Needless to say, the endeavours of the auditors are focused on attaining the Regulator’s objective of raising the level of compliances and plummeting the non-compliances. All said and done, with the recognition accorded by MCA to this non-financial audit, it is imperative that the Company Secretaries undertaking the role of secretarial auditors keep upto the expectations of Regulators by submitting quality secretarial audit reports fulfilling its intended objective. Keeping in sight the future of this more than significant entity, the Institute has revised the Guidance Note on Secretarial Audit and is pleased to release its Fourth Edition. The publication that follows highlights not only the basics but also provides an insight into the skills required, the checklists, etc. Significant focus has also been placed upon Secretarial standards, board processes and for the benefit of the professionals, a specimen Qualified Secretarial Audit Report has been inculcated as well. I am confident that this publication will prove to be of immense practical value to professionals while carrying out the secretarial audit. I commend the dedicated efforts put in by the ICSI team led by CS Banu Dandona, Joint Director and comprising CS Deepa Khatri, Deputy Director; CS Kalpesh Mehta, Assistant Director, Cs Disha Kant, Assistant Director and CS Khusbu Mohanty under the overall guidance of CS Dinesh Chandra Arora, Secretary, ICSI, in preparation of this publication. I would like to place on record my sincere gratitude towards members of the Auditing Standards Board, ICSI for their suggestions in further strengthening the contents of this publication under the guidance of CS Vineet K Chaudhary, Chairman, Auditing Standards Board and Central Council Member, ICSI. I also take this opportunity to thank CS Ahalada Rao V, Vice President and

  • (iv)

    Chairman Corporate Laws and Governance Committee, ICSI for providing his valuable guidance on the publication. Further, I personally thank all my Council colleagues in giving their wholehearted support for bringing out this publication. I sincerely hope that the publication shall prove to be the perfect guide of sorts in assisting the professionals in gaining better understanding and grasping the true essence of law in its effective letter and spirit. Furthermore, inevitably, in any publication, there is always scope for further improvement. I would personally be grateful to users and readers for offering their suggestions/comments for further refinement.

    Date: May 15, 2018 CS Makarand Lele

    President

    Place: New Delhi The Institute of Company Secretaries of India

  • (v)

    PREFACE TO THE THIRD EDITION

    Secretarial Audit is a mechanism which gives necessary comfort to the management, regulators

    and the stakeholders, as to the compliance by the company of applicable laws and the existence of

    proper and adequate systems and processes in the company. Submission of Secretarial Audit

    Reports for the prescribed companies was mandated with effect from financial year 2014-15 under

    section 204 of the Companies Act, 2013. Since then, a number of secretarial audit reports have

    been filed with the Registrar.

    Expectations are such that the secretarial auditors should detect the instances of non-compliances

    and in result facilitate taking corrective-measures. There should be an effective due diligence

    exercise before the issuance of Secretarial Audit Report. To regulate the quality of such reports

    and to guide on the same, ICSI had analysed the Secretarial Audit Reports (approximately 3500)

    relating to financial year 2014-15.

    Further to introduce best practice standards to perform Secretarial Audit function under section 204

    of the Companies Act 2013, Auditing Standards Board (ASB) of ICSI has been constituted in June,

    2016. To support the members in effectively carrying out the Secretarial Audits and to enrich the

    Secretarial

    Audit Reports, this Guidance note has been further revised and updated. The checklists have also

    been strengthened. The indicative list of the Sector Specific Laws applicable to various industries is

    also widened to include more industries.

    I commend the dedicated efforts put in by CS Banu Dandona, CS Lakshmi Arun, Joint Directors,

    CS Deepa Khatri, CS Anamika Chaudhary, Deputy Directors and CS Disha Kant, CS Kalpesh

    Mehta, CA Hema Babbar, Assistant Directors in revising this publication under the guidance of CS

    Alka Kapoor, Joint Secretary, Directorate of Corporate Laws and Governance, ICSI.

    I further appreciate and acknowledge the efforts of CS Vineet K. Chaudhary, Central Council

    Member and Chairman, Corporate Laws and Governance Committee, ICSI as well as CS Mahesh

    Athavale, CS Ashok Tyagi, CS Shaileshri Bhaskar, CS V Sreedharan, CS Vijay Sharma, CS

    Divesh Goyal, Practising Company Secretaries for their inputs and guidance in reviewing the

    publication.

    I also acknowledge the suggestions given by the Members of the Auditing Standards Boards in

    further strengthening the contents of this publication.

    I am confident that the publication will prove to be of immense benefit to companies and

    professionals.

    In any publication, there is always scope for further improvement. I would personally be grateful to

    users and readers for offering their suggestions/ comments for further refinement.

    Place: New Delhi CS Mamta Binani

    Date: 5th August, 2016 President

    The Institute of Company Secretaries of India

  • (vi)

    PREFACE TO THE SECOND EDITION

    Governments, financial institutions, banks and companies all have realized that the corporate

    compliant regime lies not in the adequacy of legislations but in its implementation and compliance.

    Enactment of various laws is not enough and the desired results cannot be achieved unless their

    implementation is geared up.

    The frauds and scams, which have been detrimental not only to growth of financial market but have

    been a set back to the economy as a whole, have occurred in the past despite and inspite of

    having plethora of legislations.

    Realising the need to ensure compliance of laws in letter and spirit on continuous basis by an

    independent professional, the Companies Act, 2013 mandated the carrying out of secretarial audit

    for bigger companies.

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