CMA Intermediate · Corporate Accounting and Auditing

Secretarial Audit: formula sheet

Full chapter guide

Key formulas

Who must get it done (Section 204(1)): Every listed company + other prescribed classes of companies; The other classes come from the rules. Learn the thresholds from your ICMAI material.
Who conducts it: Company secretary in practice; Not the statutory auditor, and not the in-house company secretary.
Where the report goes: Annexed to the Board's report under Section 134(3); The Board must explain in full every qualification, observation or remark (Section 204(3)).
Company's duty: Give all assistance and facilities for auditing secretarial and related records; Section 204(2).
Penalty for contravention: ₹2,00,000 on the company, every officer in default, or the company secretary in practice in default; Section 204(4), as substituted by the 2020 amendment.
Who must get a secretarial audit (s.204(1)): Every listed company + prescribed class of companies; The report is annexed to the Board's report under section 134(3).
Who can be the auditor (s.204(1)): Company secretary in practice; Report must be in the prescribed form.
Company's duty (s.204(2)): Give all assistance and facilities for auditing secretarial and related records; This is a duty of the company, not an option.
Board's duty (s.204(3)): Explain in full every qualification, observation or other remark; Done in the Board's report under section 134(3).
Penalty for contravention (s.204(4)): ₹2,00,000 on each of: the company, every officer of the company, or the company secretary in practice, who is in default; A person is liable only if that person is in default or has contravened the section.
Application of s.143 (s.143(14)(b)): Section 143 applies mutatis mutandis to a company secretary in practice conducting secretarial audit under s.204; Gives rights of access and the duty to report fraud.
Fraud reporting penalty (s.143(15)): Listed company: ₹5,00,000. Other company: ₹1,00,000; Applies if the company secretary in practice fails to comply with s.143(12).
Who must annex the report: Listed companies + other prescribed classes → annex secretarial audit report to Board's report (s. 204(1)); The report is annexed to the Board's report made under section 134(3).
Who gives the report: Company secretary in practice, in the prescribed form (Form MR-3); Not the statutory auditor. Do not say the cost auditor or CA gives it.
Duty of the company: Give all assistance and facilities to the auditor (s. 204(2)); Covers auditing of secretarial and related records.
Duty of the Board: Explain in full every qualification, observation or other remark (s. 204(3)); The explanation goes in the Board's report under section 134(3).
Penalty for contravention: Company, every officer in default, and the company secretary in practice in default: penalty of ₹2,00,000 (s. 204(4)); The text says 'liable to a penalty of two lakh rupees'.
SS-1: SS-1 = Secretarial Standard on Meetings of the Board of Directors; Covers notice, agenda, quorum, conduct and minutes of board meetings and committee meetings.
SS-2: SS-2 = Secretarial Standard on General Meetings; Covers notice, explanatory statement, proxies, voting, poll and minutes of general meetings.
Issuing body: Secretarial Standards are issued by the ICSI; They are made under the Companies Act and compliance is mandatory for companies.
Laws in scope: Companies Act + SEBI laws + FEMA + other applicable laws; The report covers the laws applicable to the company, not every law in India.
Nature of report: Secretarial audit = compliance opinion, not a true and fair view; It does not replace the statutory financial audit.
Who must annex the report: Listed companies + prescribed classes → secretarial audit report annexed to the Board's report under section 134(3); Section 204(1). The report is given by a company secretary in practice in the prescribed form.
Company's duty to assist: Company must give all assistance and facilities for auditing secretarial and related records; Section 204(2).
Board's response: Board must explain in full every qualification, observation or other remark; Section 204(3). The explanation goes in the Board's report.
Penalty for contravention: Company, every officer in default, or company secretary in practice in default: penalty of ₹2,00,000; Section 204(4). It covers the company, officers and the auditor.
Lesser penalty for small entities: Penalty ≤ ½ of the stated penalty, subject to a maximum of ₹2,00,000 for a company and ₹1,00,000 for an officer in default or any other person; Section 446B. Applies to One Person Company, small company, start-up company or Producer Company.
Adjudication and appeal: Adjudicating officer (not below Registrar) imposes penalty after hearing; appeal to Regional Director within 60 days of receiving the order; Section 454(1), (4), (5), (6).
Non-compliance with adjudication order: Company: fine ₹25,000 to ₹5,00,000. Officer in default or other person: imprisonment up to 6 months or fine ₹25,000 to ₹1,00,000, or both; Section 454(8), where the order is not complied with within 90 days of receiving its copy.

Quick revision

Section 204 covers secretarial audit for bigger companies.
Applies to every listed company and other prescribed classes of companies.
The audit is done by a company secretary in practice.
The secretarial audit report is annexed to the Board's report under Section 134(3).
The report is given in the prescribed form, which is Form MR-3.
The company must give all assistance and facilities to the auditor for auditing the secretarial and related records.
The Board must explain in full any qualification, observation or other remark in the report.
Penalty under Section 204(4) is ₹2,00,000 on the company, every officer in default and the auditor in default.
Section 143 applies mutatis mutandis to a company secretary in practice conducting secretarial audit.
If the secretarial auditor does not comply with the fraud-reporting duty in Section 143(12), the penalty is ₹5,00,000 for a listed company and ₹1,00,000 for any other company.
Good-faith reporting of fraud under Section 143(12) is not a breach of any duty.

Common mistakes

Saying the statutory auditor does the secretarial audit. Fix: Secretarial audit is given by a company secretary in practice. A statutory auditor is a chartered accountant.
Saying only listed companies need secretarial audit. Fix: The section also covers other prescribed classes of companies. Learn those thresholds.
Saying that any company secretary can be the secretarial auditor. Fix: Always write 'company secretary in practice'. An in-house company secretary under section 205 is a different role.
Confusing section 204 (secretarial audit) with section 205 (functions of company secretary). Fix: Section 204 is the audit by an outsider. Section 205 lists the in-house secretary's functions, such as reporting to the Board on compliance.
Saying the statutory auditor or a cost auditor signs the secretarial audit report. Fix: Link secretarial audit with company secretary in practice every time.
Writing that the report goes to the Registrar or the Central Government instead of being annexed to the Board's report. Fix: Remember section 204(1): annex with the Board's report made under section 134(3).
Swapping SS-1 and SS-2 Fix: Remember 1 for the Board and 2 for the general meeting of members.
Saying the secretarial audit covers all laws in India Fix: State that it covers laws applicable to the company, including industry-specific laws.
Saying the penalty applies only to the company. Fix: Section 204(4) names the company, every officer in default and the company secretary in practice in default. Name all three.
Mixing up secretarial audit with cost audit or statutory audit. Fix: Secretarial audit checks compliance and records by a company secretary in practice. Cost audit under section 148 is by a cost accountant. Statutory audit covers financial statements.

Exam tips

Write 'company secretary in practice' exactly. Examiners look for it.
Quote Section 204 sub-sections accurately: (1) applicability, (2) assistance, (3) Board explanation, (4) penalty of ₹2,00,000.
For applicability problems, write each threshold test as a separate line so you earn step marks even if one figure is wrong.
In difference questions, give at least four points in a two-column style using bullet lines.
In MCQs, watch for options that name the statutory auditor or a company secretary in employment as the secretarial auditor. Both are wrong.
Write 'company secretary in practice' every time. That phrase carries the mark.
In MCQs, watch for options that say 'company secretary employed by the company'. These are wrong for section 204.
If asked for the penalty, give ₹2,00,000 and name who bears it: the company, officers in default and the auditor in default.