Secretarial Audit

A Secretarial Audit is a process to check compliance with the provisions of various laws and rules/regulations/procedures, maintenance of books, records, etc., by an independent professional. 

Generally, only a Practicing Company Secretary (PCS)—a member of the national professional body (such as the ICSI in India) holding a valid certificate of practice—is authorized to conduct the audit and sign the Secretarial Audit Report.

The objective is to ensure that the company’s “legal health” is intact. It aims to protect the interests of the directors, officers, shareholders, and creditors by identifying non-compliances and suggesting corrective measures before they lead to penalties or litigation.

While a Financial Audit examines the financial statements and monetary accuracy, a Secretarial Audit examines legal compliance and corporate governance. One deals with “How much did we earn/spend?” while the other deals with “Did we follow the law in doing so?”

The scope usually includes:

• The Companies Act and associated Rules.

• Securities and Exchange Board (SEBI) laws and regulations (for listed firms).

• Foreign Exchange Management Act (FEMA).

• Industry-specific laws (e.g., Banking Regulation Act, Labor laws).

• Secretarial Standards issued by professional bodies.

In many jurisdictions, Form MR-3 is the prescribed format for the Secretarial Audit Report. It is the official document where the auditor records their findings, observations, and qualifications regarding the company’s compliance.

If the auditor finds a lapse, they discuss it with the management. If it cannot be rectified or explained, the auditor must “qualify” the report. This means they add a specific observation or adverse remark in the final audit report detailing the nature of the non-compliance.

Yes. If an auditor provides a false or misleading report or fails to report a material non-compliance due to negligence, they can face disciplinary action from their professional institute, as well as fines or imprisonment under corporate law.

Yes, typically at a high level. The auditor ensures that the company has a system in place to comply with all applicable laws, including labor (PF, ESI, Minimum Wages) and environmental regulations, and checks for major defaults or litigation in these areas.

The appointment is usually made by the Board of Directors at a Board Meeting. The remuneration is also fixed by the Board. It is considered good governance to have the Audit Committee recommend the appointment.

Once it is annexed to the Board’s Report (Annual Report) and filed with the Registrar of Companies, it becomes a public document. Shareholders and stakeholders can view it to assess the company’s governance standards.

An MRL is a letter issued by the company’s management to the auditor. It confirms that the management has provided all necessary information and that they are responsible for the company’s compliance systems. It serves as a formal record for the auditor.

No. To maintain independence and objectivity, the auditor must be a Practicing professional and not in the employment of the company being audited.

Directors are often held liable for “officer in default” penalties. A Secretarial Audit provides them with a “Due Diligence” defense, showing they took reasonable steps to ensure the company was complying with the law.

The CS in employment acts as the bridge between the company and the external Secretarial Auditor. They are responsible for providing all registers, files, and documents to the auditor and explaining the company’s internal compliance processes.