Secretarial Audit – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
Write Short Note on the following: “Secretarial Audit”.
Answer:
1. Secretarial Audit is the process of independent verification, examination of level of compliance of applicable corporate laws to a company.

2. As per Section 204( 1) of Companies Act, 2013, 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.

3. As per Rule 9 of Companies (Appointment and’ Remuneration of Managerial Personnel) Amendment Rules, 2020: The other class of companies for purpose of Section 204(1) of the Companies Act, 2013 shall be as under:

  • Every public company having a paid-up share capital of fifty crore rupees or more; or
  • Every public company having a turnover of two hundred fifty crore rupees or more; or
  • Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

Question 2.
“Secretarial audit is prevention rather than post-mortem.” In light of this statement explain the need of secretarial audit particularly with reference to corporate law compliances.
Answer:
Secretarial audit is prevention rather than post-mortem. Following are the needs for which secretarial audit arises to comply corporate law compliance :

  1. Effective mechanism to ensure that the legal and procedural requirements are duly complied with.
  2. Providing a level of confidence to the directors & key managerial personnel etc.
  3. Directors can concentrate on important business matters as secretarial audit ensures legal and procedural requirements.
  4. Strengthen the image and goodwill of a company in the minds of regulators and stakeholders.
  5. An effective governance and compliance risk management tool.
  6. Investors’ help in analyzing the compliance level of companies resulting in positive impact on the reputation.

Question 3.
You are the Secretarial Auditor of Admire Ltd. State the matters to be considered by you while preparing the Audit Report.
Answer:
Matters to be considered while preparation of Audit Report in Form No. MR-3 as Secretarial Auditor of Admire Ltd:

  1. Report is addressed to the members but is-to be submitted to the Board
  2. Report shall contain the opinion of the statutory compliance examined by the auditor and shall state whether in his opinion the company is carrying out due compliance of the applicable provisions.
  3. Proper placing of qualifications/reservation or adverse remarks, if any should be stated in report of secretarial in bold type and in italics.
  4. In case the Secretarial Auditor is unable to express an opinion on any matter he must mention the same his reporting.
  5. If scope of work of the audit is restricted as imposed by the company the reporting of the Secretarial Auditor should mention such limitations.

Question 4.
Write a note on the following: “Overseas investment by proprietorship concern/unregistered partnership”.
Answer:
For Overseas Investment by proprietorship concern/unregistered partnership the following terms and conditions are required to be complied:

  1. Classified as “Status Holder” as per the Foreign Trade Policy issued by the Ministry of Commerce and Industry, Govt, of India from time to time.
  2. Proven track record i.e., the export outstanding does not exceed 10% of the average export realisation of the preceding 3 years and a consistently high export performance.
  3. Satisfaction of Authorised Dealer Bank is Know Your Customer (KYC) compliant and engaged in the proposed business and has turnover as indicated.
  4. Not comes under the adverse notice of any Government Agency (like Income-tax Department, etc.) and does not appear in the exporters’ caution list of the RBI or in the list of defaulters to the banking system in India
  5. The amount of proposed investment/proposed commitment outside India does not exceed 10 per cent of the average of last 3 years’ export realisation or 200 per cent of net owned funds of the proprietorship concern/unregistered partnership firm in India, whichever is lower.

Question 5.
The Director (HR) of ABC Ltd. has desired for renovation and mod-ernization of Admin Building situated at Brie Complex, New Delhi. There was special instruction for transfer/destroy of bulky records to facilitate more space. The Secretarial Department of the Company keeps and maintains all secretarial records permanently which has occupied huge space. As a Secretarial Officer, prepare a checklist for Preservation of Secretarial Records.
Answer:
Checklist for preservation of Secretarial Records: As per Sections 118, 119, of the Companies Act, 2013 read with Rules 25, 26 of the Companies (Management and Administration) Rules, 2015 along with Secretarial Standards 1 and 2 describes the detailed provisions on preservation of Minutes and Other Records which are as under:
1. Minutes of all Meetings shall be preserved permanently in physical or in electronic form with Timestamp.

2. Under a scheme of arrangement, a company has been merged or amalgamated with another company, Minutes of all Meetings of the transferor company, as handed over to the transferee company shall be preserved permanently by the transferee company. However, the transferor company might have been dissolved.

3. Office copies of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in good order in physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board.

4. Copies of Notices, Agenda, Notes on Agenda and other related papers of the transferor company, as handed over to the transferee company, shall be preserved in good order in physical or electronic form for as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of the Board and permission of the Central Government (if applicable).

5. Minutes Books shall be kept in the custody of the Company Secretary. However, in case of no Company Secretary, Minutes shall be kept in the custody of any Director duly authorised for the purpose by the Board.

Question 6.
How would you identify, check and verify the compliance of applicable statutory provisions adherence to good corporate governance during the Secretarial Audit of S.S. Telecom Company Ltd., unlisted public company.
Answer:
Secretarial Audit is a process to check compliance with the provisions of all laws applicable specifically to the company and rules/regulations/ procedures as well as adherence to good governance practices with regard to the systems and processes of seeking and obtaining approvals of the Board and/or shareholders, as may be necessary. Secretarial Auditor shall examine the books, papers, minute books, forms and returns filed and other records maintained by S.S. Telecom Company Ltd. according to the provisions of:

  • The Companies Act, 2013 and the rules made thereunder
  • The Securities Contracts (Regulation) Act, 1956 and the rules made thereunder
  • The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder
  • The Foreign Exchange Management Act, 1999 and the Rules and Regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;

Other laws as may be applicable specifically to the company, these may be:

  • TRAI Act, 1997, Rules, regulations and Bye-laws framed there-under;
  • India Telegraph Act.
  • The Indian Wireless Telegraph Act, 1933 (if applicable).
  • Other applicable laws.
  • Secretarial Standards issued by ICSI.
  • Constitution of Board of Directors with proper balance of Executive Directors, Non-Executive Directors and Independent Directors.
  • Recording of the Majority decision is carried through while the dissenting members’ views are captured and recorded as part of the minutes.
  • Reporting on adequate systems and processes in the company.

Question 7.
State the provisions of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 relating to:
i. Eligibility
ii. Restrictions/Prohibitions.
iii. Approvals required.
Answer:
As per the applicable provisions of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004:
i. Eligibility: An Indian party is eligible to make direct investment in Joint Venture or Wholly Owned Subsidiary outside India. As per Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, Indian party includes:

  • A company incorporated in India;
  • Body created under an act of parliament;
  • Partnership registered under Indian Partnership Act, 1932
  • Any other entity as may be notified by the Reserve Bank.

ii. Restrictions/Prohibitions: Following restrictions are imposed:

  • Indian parties are prohibited from making direct investment in a foreign entity engaged in real estate/banking business. It may be noted that Indian Banks operating in India can set-up WOS abroad, provided they obtain clearance under Banking Regulation Act, 1949.
  • Investment in Pakistan is not permitted under Automatic Route.
  • A person resident in India is not permitted to make Overseas Direct investments unless RBI’s prior approval is obtained. Further, he may purchase a foreign security out of funds held in Resident Foreign Currency (RFC) Account maintained in accordance with the Foreign Exchange Management (Foreign
  • Currency Accounts by a person resident in India) Regulations, 2015.

iii. Approvals Required:

  • Approval from Board of Directors.
  • Shareholders of the Company.
  • Approval from Department of Economic Affairs, Ministry of Finance, if required.
  • Approval from Reserve bank of India (pre/post facto).

Question 8.
Write short note on: Qualified and Unqualified Secretarial Audit Report.
Answer:
Qualified Secretarial Audit Report:

  • Qualified Report is one which indicates the non-compliances, with the provisions of law and procedures.
  • Deviations from secretarial standards and frauds if any, are also reported.
  • Qualifications, reservations and/or adverse remarks, if any should be stated by the secretarial auditor at the relevant places in his report in bold type and italics.

Unqualified Secretarial Audit Report:

  • The auditor shall report an unqualified opinion if the affairs of the company are found to be free from material misstatements.
  • This is also known as a “clean” opinion, meaning that the affairs of the company are presented fairly.

The Auditor should express an unmodified opinion when based on Audit Evidence, the Auditor concludes that:

  • There is due compliance with the applicable law in terms of timelines and process.
  • The records as relevant for the audit verified by him as a whole are free from misstatement and maintained in accordance with applicable laws.
  • The auditor concludes that the information on the affairs of the company in all material respects, are in accordance with the applicable reporting framework.

Question 9.
Write Short note on: “Reliance of Secretarial Auditor on the reports of other designated auditors”.
Answer:

  1. The mandatory audit areas to be covered during Secretarial audit include finance and taxation areas.
  2. However, audit of finance is done by the Statutory Auditors of the Company and the details are covered in the Statutory Audit Report provided by him.
  3. Tax Audit is done by the statutory auditor or any other designated auditor who provides the Tax Audit Report covering the areas of Taxation.
  4. The Secretarial Auditor may rely on the Reports given by these pro-fessionals on their respective areas while performing his audit duties.
  5. In addition, Secretarial Auditor is expected to report on the Board Processes, Secretarial Compliances as well as the laws covered in Form MR-3 along with the other applicable laws.

Question 10.
Explain the objects, scope and benefits of Secretarial Audit.
Answer:
1. Objectives of Secretarial Audit : Following are the Objectives of Secretarial Audit:

  • Checking of Compliances.
  • Reporting on Compliances.
  • To figure out non-compliance and inadequate compliances.
  • To protect the interest of Stakeholders.
  • Avoidance of any unwarranted legal actions by law enforcing agencies and other persons as well.

2. Scope of Secretarial Audit: Verification of compliances under enactments, rules, regulations, notifications and guidelines.

3. Benefits: Following are benefits of Secretarial Audit:

  • An effective due diligence exercise for the prospective acquirer of a company or controlling interest or a joint venture partner.
  • It assures the owners that management and affairs of the Company are being conducted in accordance with requirements of laws and that the owners stake is not being exposed to undue risk.
  • Secretarial Audit being proactive measure for compliance with a plethora of laws, it will have a salutary effect of substantially lessening the burden of the law enforcement authorities.
  • Self regulations and professional discipline.

Question 11.
Bright Vision Ltd. wishes to appoint a secretarial auditor. Prepare a brief note for the Chairman of the Company about thp pre-requisites for carrying out a secretarial audit.
Answer:
To,
The Chairman Bright Vision Ltd.
Subject: Pre-requisites for carrying out Secretarial Audit
Dear Sir
As per Section 204(1) of Companies Act, 2013, every listed company and a compa¬ny 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.
As per Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020: The other class of companies for purpose of Section 204(1) of the Companies Act, 2013 shall be as under:

  • Every public company having a paid-up share capital of fifty crore rupees or more; or
  • Every public company having a turnover of two hundred fifty crore rupees or more; or
  • Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

As per Rule 9(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the format of Secretarial Audit Report shall be in Form No. MR-3. As per Section 134 and Section 204(3) of Companies Act, 2013 provides that the Board of Directors in its report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in Secretarial Audit Report.

Yours’ Faithfully
XYZ ‘

Question 12.
Mention the pre-requisites to secretarial audit.
Answer:
1. Secretarial Audit is the process of independent verification, examination of level of compliance of applicable corporate laws to a company.

2. As per Section 204( 1) of Companies Act, 2013, 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.

3. As per Rule 9 of Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2020: The other class of companies for purpose of Section 204(1) of the Companies Act, 2013 shall be as under:

  • Every public company having a paid-up share capital of fifty crore rupees or more; or
  • Every public company having a turnover of two hundred fifty crore rupees or more; or
  • Every company having outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more.

4. As per Rule 9(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the format of Secretarial Audit Report shall be in Form No. MR-3.

5. As per Section 134 and Section 204(3) of Companies Act, 2013 pro-vides that the Board of Directors in its report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in Secretarial Audit Report.

Question 13.
XYZ Bank Ltd. has sanctioned a term loan for INR 5,000 crore to CXT Ltd. The purpose of the loan is to develop the townships in 5 Smart Cities including Mumbai. The 30% of the loan amount is to be used for Mumbai only. However, during the verification of the records of the company, it was found that certain land area in Mumbai is a disputed area where the Honble High Court has granted stay till next hearing. You are appointed by the Bank as Secretarial Auditor for making a search report. What are the documents to be inspected by the Secretarial Auditor in the instant case?
Answer:
In the given case, it is necessary to inspect and retrieve the history s of a property right from the original owner of the property to the current owner over a period of time. It provides documents which help determine relevant interests in property of the owner and other individuals, if any, along with the title certificate, ‘agreement to sell’ with the intended purchaser containing details of the existing mortgage, litigation, condition or claim, which likely to affect the project.

In case of the property title Search report, the following documents are considered:

  • Ownership: Status of ownership-sole or joint and the documents stating the same.
  • Deed Copy: Recent deeds in respect to the property.
  • Legal Description: Description of the property in legal parlance.
  • Chain documents: Previous owner of the property.
  • Possession: Actual Possession of the property.
  • Leases: Leases on the property which can affect the property status.
  • Mortgage: Whether the property has been mortgaged or not?
  • Tax Payment: Details of tax payment in relation to the property.
  • Bankruptcy Search: Report of bankruptcy of the owner of the property.
  • Municipal Service Lien: Report of unpaid municipal dues like water, sewer, trash etc.
  • Property Restriction: Restriction on sale of property like sale in case of unsound owner.
  • Plot Map: Official copy of Map of the plot.
  • Property Zoning: Property lying under which zone like Ecological Zone, Flood Zone, Earthquake Zone etc.
  • Civil Court Record: Any order of the Civil Court against the property.

In case of Company Search report, the professional should go through the various documents maintained by the company which are required for the purpose of the report, some the documents which may require are as under:

  • Various clauses of Memorandum and Articles of Association
  • Forms filed with the Registrar of Companies with receipts.
  • All statutory registers.
  • Verification of financial statement along with notes to accounts and Auditor Report.
  • Report of Internal Auditor.
  • Copies of contracts made between the company and any of the related parties.
  • Transfer and Transmission of Share.
  • Instruments creating, modifying or satisfying charges.
  • Various Disclosures from Directors.
  • Related Party Transactions.
  • Corporate Social Responsibility (CSR).

Question 14.
X & Co. Practicing Company Secretary, was appointed as Secretarial Auditor of a Company. During the audit certain irregularities were found. However before the finalisation of the Report, the Company Secretary of the Company suggested a communication on the subject. Brief the stages involved for communication and discussion to finalise the Final Report of Secretarial Auditor.
Answer:
The stages involved for communication and discussion to finalise the Secretarial Audit Report are as under:
i. Submission of the Preliminary Draft: At the conclusion of fieldwork, the auditor should draft the report and present it to the entity’s management for auditee’s comments.

ii. Exit Meeting: The auditor should discuss with the management the findings, observations, recommendations, and text of draft and obtain their comment on the draft, achieve consensus and reach an agreement on the audit findings.

iii. Formal Draft: The auditor should prepare a formal draft, in view of the outcome of the exit meeting and other discussions. Upon review of such changes by the auditor and the management, the final report should be issued.

iv. Final Report: The report should be submitted to the appointing authority or such members of management as directed.

Question 15.
If the amount of a fraud detected by a Secretarial Auditor during the course of his work in a company is INR 50 Lakhs, explain his duties to report.
Answer:
Reporting of frauds by auditor involving amount less than INR 1 Crore:
As per the sub-rule (3) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 in case of fraud involving an amount less than INR 1 Crore, the auditor shall report the matter of fraud to the Audit Committee or to the Board within 2 days of his knowledge of the fraud. The report should specify the nature of the fraud with description, approximate amount of the fraud and parties involved in the fraud.

In such case, as per sub-rule (4), the Board shall disclose in its report (Board’s Report) the nature of fraud with description, approximate amount of the fraud, parties involved in the fraud and remedial action taken. Name of parties should be disclosed only when the Board or Audit Committee has not taken any remedial action against the fraud.

In the given instance, the Secretarial Auditor shall report the same to the Audit Committee or to the Board of the company within 2 days of his knowledge of fraud.

Question 16.
What are the guiding criteria for identifying the applicable laws while conducting the Secretarial Audit?
Answer:
Guiding Criteria for Segregation of Specific Laws and General Laws:
Segregation of laws applicable on the Company into the industry specific and general is essential for Secretarial Audit. After considering the following factors, the auditor should make the segregation of the same based on the laws applicable on the Company:

  • Key financial parameters such as Turnover, Paid-up share capital, Net worth, Borrowings, etc.
  • Geographic location of registered office, units/divisions/plants/ branches, etc.
  • Status of company such as listed /unlisted.
  • Type/Class of company such as Private, Public, Holding, Subsidiary, Foreign, Nidhi, Producer, Section 8 Company, etc.
  • Registration with various authorities such as SEZ, Sectorial Regulators, etc.
  • Segment such as Manufacturing/Trading/Service/e-commerce and Industry classification thereof.
  • Agreements governing rights, obligations of shareholders such as Joint venture, shareholders’ agreements.
  • Number, class and category of employees/workers such as women, contractual employees, etc.

The auditor should comprehensively verify all laws, rules, regulations made for regulation of specific Industry and should assess the adequacy of systems and process for other General laws applicable to the Company other than Industry Specific Laws and laws specifically covered under Form MR-3.

Question 17.
FKZ Ltd. is a public limited company carrying business of manufacturing the electric products having a paid up capital of INR 75 crore and turnover of INR 250 crore as per latest audited financial statement. Answer the following:
i. Explain the applicability of Secretarial Audit to this company, s ii. Define ‘Turnover’ as per section 2(91) of the Companies Act, 2013.
iii. Explain the provision regarding appointment of the Secretarial Auditor.
iv. In case, ‘S’ a Secretarial Auditor, is found involved in the fraud amounting of INR 3 lakh (does not involve any public interest), then state the penalty for such action.
Answer:
i. Section 204(1) of the Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that-

  • every listed company;
  • every public company having a paid-up share capital of fifty crore rupees or more; or
  • every public company having a turnover of two hundred fifty crore rupees or more

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 form MR-3. In the instant case FKZ Ltd. meets the criteria of paid up capital and the Turnover, hence the company is required to annex secretarial Audit report with its Boards Report.

ii. As per section 2(91) of the Companies Act, 2013, “Turnover” mean the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.

iii. As per Rule 8 of the Companies (Meetings of,Board and its powers) Rules, 2014, read with Section 179 of the Companies Act, 2013, secretarial auditor/company secretary in practice is required to be appointed by means of resolution at a duly convened board meeting.

iv. In the instant case since the fraud is of INR 3 Lakh which is less than INR 10 Lakh and does not involve public interest, the Secretarial Auditor ‘S’ shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to INR 50 Lakh or with both.

Question 18.
What are the penal provisions under the Companies Act, 2013 for giving incorrect Secretarial Audit Report or making false statements therein.
Answer:
1. Section 448 of Companies Act, 2013 deals with penalty for false statements. The Section provides that if in any return, report certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement

  • which is false in any material particulars, knowing it to be false; or
  • which omits any material fact, knowing it to be material, he shall be liable under Section 447.

2. Penalty for incorrect Secretarial Audit Report:
Section 447 deals with punishment for fraud which provides that any person who is found to be guilty of fraud, involving an amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. In case, the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

3. In case where the fraud involves an amount less than ten lakh rupees or one per cent of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to Fifty lakh rupees or with both.

4. In view of this, a company secretary in practice will be attracting the penal provisions of section 448, for any false statement in any material particular or omission of any material fact in the Secretarial Audit Report. However, a person will be penalised under Section 448 in case he makes a statement, which is false in any material particular, knowing it to be false, or which omits any material fact knowing it to be material.

Question 19.
Write Short Note: “Role of Practicing Company Secretary in Secretarial Audit”.
Answer:

  1. A Company Secretary in practice is a professional who is well-versed in matters of statutory, procedural and practical aspects of laws applicable to companies, both listed and unlisted public and private companies.
  2. A strong knowledge base makes him a competent professional to conduct Secretarial Audit.
  3. In terms of section 204(1) of Companies Act, 2013 only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial
  4. Audit and furnish the Secretarial Audit Report to the company.

Question 20.
Explain the process of Secretarial Audit?
Answer:

  • Step 1 : Appointment of Secretarial Auditor:
  • Step 2 : Communication to Earlier Incumbent:
  • Step 3 : Acceptance of Appointment:
  • Step 4 : Preliminary Discussions/Surveys:
  • Step 5 : Preliminary Meeting:
  • Step 6 : Finalization of Audit Plan and Briefing the Staff:
  • Step 7 : Testing, Interviews and Analysis:
  • Step 8 : Working Papers
  • Step 9 : Audit Summary for Discussions
  • Step 10 : Submission of Secretarial Audit Report

The brief about each and every step discussed below:
1. Appointment of Secretarial Auditor: As per Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, read with Section 179 of the Companies Act, 2013, secretarial auditor is required to be appointed by means of resolution at a duly convened board meeting.

2. Communication to Earlier Incumbent: Whenever a company secretary in practice is engaged as a secretarial auditor in place of an earlier incumbent, he shall communicate to the earlier incumbent about the proposed engagement in writing to be sent by registered/speed post or any other mode of delivery, as may be recognised by the Institute of Company Secretaries of India.

3. Acceptance of Appointment: A formal letter for appointment should be issued by the company to the secretarial auditor along with the copy of the board resolution for appointment. The secretarial auditor should confirm acceptance of appointment in writing.

4. Preliminary Discussions/Surveys: The secretarial auditor is expected to take general overview of the operations of the company and interact with the personnel involved to know about the nature of the business. He may opt for surveys for generating information about the company.

5. Preliminary Meeting: The preliminary meeting with the senior management and the administrative staff involved in the audit will give a fair idea of what is expected and the manner in which audit activities are to be undertaken.

6. Finalization of Audit Plan and Briefing the Staff: The plan involves briefing the audit staff as to allotment of work, fieldwork responsibilities and other roles. The audit plan should comprehensively outline the fieldwork and usage of auditing tools.

7. Testing, Interviews and Analysis: The secretarial auditor may use a variety of tools and technology to gather information about the company’s operations. The secretarial auditor should determine whether the controls identified during the preliminary review are operating properly and in the manner described by the Company.

8. Working Papers: Working papers are a vital tool of the audit process. They form the basis for expression of the audit opinion. They connect the management’s records and information to the auditor’s opinion.

9. Audit Summary for Discussions: It is recommended that the findings during the course of audit are summarized and presented for initial dis cussions with the management for their views/clarifications/replies.

10. SubmIssion of Secretarial Audit Report: The clarifications/replies of the management, the secretarial auditor shall prepare the secretarial audit report in form MR.3. The report shall be provided with or without qualifications.

Question 21.
List ten key environment protection laws
Answer:
Ten key Environment Protection Laws:

  1. Water (Prevention and Control of Pollution) Act, 1974;
  2. Water (Prevention and Control of Pollution) Cess Act, 1977;
  3. Air (Prevention and Control of Pollution) Act, 1981;
  4. Environment (Protection) Act, 1986;
  5. The Biodiversity Act, 2002;
  6. The National Green Tribunal Act, 2010;
  7. Plastic Waste Management Rules, 2016;
  8. Bio-Medical Waste Management Rules, 2016; .
  9. E-waste Management Rules, 2016; :
  10. Construction and Demolition Waste Management Rules, 2016.

Question 22.
Write short note on:
i. Abuse of Dominant position.
ii. Regulation of Combinations.
Answer:
i. Abuse of Dominant position:

  • Competition Act, 2002 does not prohibit the mere possession of dominant position but only its abuse.
  • A dominant position may have been achieved through superior economic performance.

ii. Regulation of Combinations:

  • According to the provisions of the Competition Act, 2002, combinations are discouraged, if they reduce or harm competition.
  • Act does not provide for monitoring all kinds of combinations by the CCI for the reason that very few Indian companies are of international size.
  • In the light of continuing economic reforms, opening up of trade and foreign investment, a great deal of corporate restructuring is taking place in the country and that there is a need for mergers, amalgamations etc.
  • as part of the growing economic process before India can be on an equal footing to compete with global giants as long as the mergers are not prejudicial to consumer interest.

Question 23.
What are guiding principles of Good Corporate Conduct and Practices?
Answer:
Following are guiding principles of Good Corporate Conduct and Practices:

  1. All Information relating to the company should be prepared and disclosed in accordance with applicable standards of accounting and i® financial and non-financial disclosure.
  2. The Company should refrain from misrepresentation and ensure that the information provided to investors is not misleading.
  3. The Company should provide adequate and timely information to investors.
  4. The Company should ensure that disseminations of information made are adequate, accurate, explicit and timely and presented in a simple language.
  5. The Channels for disseminating information should provide for equal, timely and cost efficient access to relevant information by investors. The Company shall abide by all the provisions of the applicable laws including the corporate laws, securities laws and also such other guidelines as may be issued from time to time by the Regulators.
  6. The company should make disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders.
  7. The Company should respect the rights of stakeholders that are established by law or through mutual agreements.
  8. Stakeholders should have access to relevant, sufficient and reliable information on a timely and regular basis to enable them to participate in corporate governance process.
  9. Members of board of directors and key managerial personnel should disclose to the board of directors whether they, directly, indirectly, or on behalf of third parties, have a material interest in any transaction or matter directly affecting the Company.
  10. The board of directors and senior management should conduct them selves so as to meet the expectations of operational transparency to stakeholders while at the same time maintaining confidentiality of information in order to foster a culture of good decision – making.

Question 24.
Define guiding criteria for the verification of compliances under Companies Act, 2013.
Answer:

  1. Documents relating to Boards and its committee which includes notice of Board Meeting, Agenda, Notes on Agenda, Minutes, notice of Committees Meetings, Agenda, Notes on Agenda, Minutes and Terms of References of the Committees.
  2. Documents Relating to Members Meeting which includes Annual General Meeting Notice, Agenda, Attendance, Minutes, Extraordinary General Meetings Notice, Agenda, Attendance, Minutes; Postal Ballot Notice, Agenda, Attendance, Minutes.
  3. Documents relating to Appointment, Resignation removal which includes appointment of Auditors, appointment of Directors, Independent Directors, appointment of Company Secretary and resignation/ Removal of Directors.
  4. Documents relating to Securities including shares, Debentures, Deposit which includes Shareholding Pattern, Issue of Securities, Buy back of Securities, Conversion of Securities, acceptance and payment of Deposits.
  5. Documents relating to Managerial Remuneration.
  6. Documents relating to registration, modification and satisfaction of charges.
  7. Documents relating to related party transactions.
  8. Statement on Transaction with Director and Loan to Directors.
  9. Statutory Register and other Registers
  10. Disclosures submitted by Directors
  11. Annual Return, Financial Statement
  12. Filing of forms with the Registrar and attachment thereof.
  13. Information of the Regulatory action, order, pending cases.
  14. Information of the various filing to stock exchanges.

Question 25.
What are the benefits of Secretarial Audit to the Stakeholders?
Answer:
The Benefits of Secretarial Audit to the Stakeholders are discussed below:
1. Secretarial Audit assures the promoters of a company that those in¬charge of its management are conducting its affairs in accordance with the requirements of laws and the owner’s stake is not being exposed to unintended risks.

2. Secretarial Audit provides comfort to the non-executive/independent directors that appropriate mechanisms and processes are in place to ensure compliance with laws applicable to the company. Hence, mitigating any risk from a regulatory or governance perspective.

3. Secretarial Audit facilitates reducing the burden of the regulators in ensuring compliances and they can take timely actions against the offenders.

4. Secretarial audit helps the investors in taking informed investment decision, as it evaluates the company in terms of compliance and governance norms being followed by the company.

Question 26.
List the industries for which reporting of specific event can be done in Secretarial Audit Report?
Answer:
1. According to the Scope of Secretarial Audit, the Council of ICSI on specific reference to other laws as may be applicable to the company as per specific industries.

2. The illustrative list of the Central, State and Local laws applicable to the various industries are placed on the website of the ICSI, However for reference the list of the industries which are covered is placed as below:
Secretarial Audit – Secretarial Audit Compliance Management and Due Diligence Important Questions 1

Question 27.
What are guiding criteria for segregation of specific laws and general laws?
Answer:
Following are guiding criteria for segregation of specific laws and general laws to make the segregation of the same based on the laws being applicable on the Company:

  1. Key financial parameters such as Turnover, Paid-up share capital, Net worth, Borrowings, etc.
  2. Geographic location of registered office, units/divisions/plants/ branches, etc.
    Status of company such as listed/unlisted.
  3. Type/Class of company such as Private, Public, Holding, Subsidiary, Foreign, Nidhi, Producer, Section 8, etc.
  4. Registration with various authorities such as SEZ, Sectorial Regulators, etc.
  5. Segment such as Manufacturing/Trading/Service/e-commerce and Industry classification thereof.
  6. Agreements governing rights, obligations of shareholders such as Joint venture, shareholders’ agreements.
  7. Number, class and category of employees/workers such as women, contractual employees, etc.

Question 28.
Define guiding criteria for the verification of Compliances under Companies Act, 2013.
Answer:
Following are guiding for the verification of compliances under Companies Act, 2013:
1. The Companies Act, 2013 and rules thereunder is the first legislation covered under the scope of the Secretarial audit.

2. The Secretarial Auditor is expected to update on the amendment in the Act and the Rules & Regulations from time to time. Before commence with the Secretarial Audit, the auditors shall go through the following documents which will help in the identification of the various event held during the audit period, according to which the auditor can prepare the audit plan and can provide the list of document required for the audit purpose to the management of the company:

  • Memorandum and Articles of Association.
  • Forms filed with the Registrar of Companies with receipts.
  • Index of Meetings held during the financial year.
  • Minutes of the Board, its Committees and of General Meeting.
  • Proof of Circulation of Notice and Agenda of Board meetings, Committee meetings and the General meeting.
  • Proof of circulation of Draft Minutes and Final Minutes of meeting , of Board and its committees.
  • Attendance Register of Board and committee meetings.
  • All statutory registers.
  • Copy of financial statement along with notes to accounts and Auditor Report.
  • Report of Internal Auditor.
  • Copies of Shareholders and joint ventures agreement, if any.
  • Copy of Declaration received from Independent Director u/s 149(7).
  • Corporate Social Responsibility (CSR)
  • Directors and Key Managerial Personnel (KMP)
  • Bank Statements relating to transfer of Dividend to separate bank account, proof of dispatch of dividend within 30 days of Dividend.
  • Advertisement/circular relating to Deposits; Credit rating certificate, deposit insurance, if any.
  • Such other documents as required for the purpose of audit.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material