Secretarial Audit

In one line

Every listed company and other prescribed companies must annex to the Board's report a secretarial audit report given by a company secretary in practice; the company must help him audit its records; the Board must explain in full anything he qualifies; and a default costs the company, its officers and the auditor two lakh rupees each.

In exam wording: section 204 is the whole subject, and its marginal note is "Secretarial audit for bigger companies".

Why the law has this at all

A company's accounts are audited every year by a chartered accountant, and that audit answers one question: are the numbers right. It does not answer the other question a member or a regulator wants answered, which is whether the company obeyed the law.

Nobody was checking that. The company secretary reports to the Board on compliance under section 205(1)(a), but he is the company's own officer, and asking him to certify compliance is asking a man to audit his own work.

Section 204 supplies the missing audit and gives it to a company secretary in practice, who is independent of the company, qualified in the law of companies rather than in accounting, and subject to his own professional discipline.

Two features make the audit useful rather than decorative. The company must give him the records, because an auditor who can be starved of papers audits nothing; and the Board must explain in full what he qualifies, so a bad report cannot be buried by annexing it and saying nothing about it.

Some words this chapter uses

A company secretary in practice is defined in section 2(25), being one deemed to be in practice under section 2(2) of the Company Secretaries Act, 1980. A qualification in a report is a statement that the auditor cannot certify something without reservation. The Board's report is the report under section 134(3). Secretarial records are the registers, minutes, returns and filings the Act requires.

Who must have one: section 204(1)

Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board's report made in terms of sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such form as may be prescribed.

Four elements, and an answer should name all four.

Who. Every listed company, and any company in a prescribed class. Note that the marginal note, "secretarial audit for bigger companies", is a description and not a test; the test is listing or the prescribed class.

What. A secretarial audit report in the prescribed form.

By whom. A company secretary in practice, and by nobody else. Not the company's own secretary, and not the statutory auditor.