CS Professional · Compliance Management, Audit and Due Diligence

Secretarial Audit: formula sheet

Full chapter guide

Key formulas

Section 204(1): who needs it: Listed company + prescribed classes → secretarial audit report annexed to Board's report (Section 134(3)); Given by a company secretary in practice, in the prescribed form.
Section 204(2): company's duty: Company must give all assistance and facilities to the auditor; For auditing the secretarial and related records.
Section 204(3): Board's duty: Board must explain in full every qualification, observation or remark; Done in the Board's report under Section 134(3).
Section 204(4): penalty: Company, every officer in default, or the company secretary in practice → penalty of ₹2,00,000; Applies on contravention of the section. Penalty amount as substituted in 2020.
Statutory basis: Section 204(1): every listed company + prescribed class of companies must annex a secretarial audit report to the Board's report; The prescribed class comes from Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Listed company test: Listed company → secretarial audit applies, whatever its size; No threshold applies. Size tests are only for unlisted companies.
Paid-up capital test: Public company with paid-up share capital ≥ ₹50 crore; Applies to public companies only. A private company is not caught by this test.
Turnover test: Public company with turnover ≥ ₹250 crore; Applies to public companies only. Compare with turnover of the last day of the previous financial year per the rule's explanation.
Borrowing test: Any company with outstanding loans or borrowings from banks or public financial institutions ≥ ₹100 crore; Applies to private companies too. Only bank and public financial institution borrowings count, not loans from directors, members or group companies.
Who gives the report: Report given by a company secretary in practice, annexed to the Board's report under section 134(3); The Board must explain in full any qualification or observation (section 204(3)).
Penalty for contravention: ₹2 lakh on the company, every officer in default and the company secretary in practice; Section 204(4), as substituted with effect from 21-12-2020.
Who must get a secretarial audit: Every listed company + other prescribed classes of companies (section 204(1)); The prescribed classes are in the rules. They are based on paid-up capital, turnover and bank or institutional borrowings above stated limits. Check the current rule thresholds before quoting figures.
Who may give the report: Company secretary in practice, in the prescribed form (MR-3); An employee CS, or a CS without a certificate of practice, cannot sign it.
Where the report goes: Annexed to the Board's report under section 134(3); It is not a separate filing item. It forms part of the Board's report to members.
Company's duty to assist: Company must give all assistance and facilities for auditing secretarial and related records (section 204(2)); Denial of records or access is a contravention.
Board's duty on qualifications: Board must explain in full every qualification, observation or other remark (section 204(3)); Explanation goes in the Board's report. It cannot be skipped or summarised vaguely.
Penalty: Contravention of section 204 = penalty of ₹2,00,000 on each defaulter (section 204(4)); Applies to the company, every officer in default and the CS in practice who is in default.
Who gives the report: Secretarial audit report = given by a company secretary in practice, in the prescribed form (MR-3); Section 204(1). It is annexed to the Board's report made under section 134(3).
Duty of the company: Company must give all assistance and facilities for auditing secretarial and related records; Section 204(2).
Board's duty on qualifications: Board's report must explain in full any qualification, observation or other remark in the secretarial audit report; Section 204(3). Section 134(3)(f) also requires comments on every qualification, reservation or adverse remark or disclaimer.
Penalty for default: Company, every officer in default, or the CS in practice in default: penalty of ₹2,00,000; Section 204(4). It applies to the company, its officers and the auditor.
Signing of Board's report: Chairperson (if authorised by the Board), else at least two directors, one being managing director; or the sole director; Section 134(6). The secretarial audit report is annexed to this report.
Who must get it done (Section 204(1)): Listed company + prescribed classes of companies → secretarial audit report by a company secretary in practice, annexed to the Board's report under Section 134(3); The prescribed classes come from the rules. State them as 'prescribed' unless the question gives the thresholds.
Company's duty (Section 204(2)): Company must give all assistance and facilities for auditing secretarial and related records; Cite this when a question deals with refusal of access to records.
Board's duty on remarks (Section 204(3)): Board's report must explain in full any qualification, observation or remark in the secretarial audit report; Silence or partial explanation is not enough.
Penalty (Section 204(4)): Company, every officer in default and the CS in practice in default → penalty of ₹2,00,000; The auditor is also exposed, so quality of work matters.
Process sequence: Engagement → Planning → Programme → Checklist testing → Working papers → Draft and discussion → Report; Use this as the skeleton for any 'steps' answer.
Function 1: Reporting: CS reports to the Board on compliance with the Act + rules + other applicable laws; Section 205(1)(a). The scope goes beyond the Companies Act to other laws applicable to the company.
Function 2: Secretarial standards: CS ensures the company complies with applicable secretarial standards; Section 205(1)(b). Standards are those issued by ICSI and approved by the Central Government.
Function 3: Prescribed duties: CS discharges such other duties as may be prescribed; Section 205(1)(c). Duties come from rules, so name them only if the question supplies them.
Saving of Board's duties: Sections 204 and 205 do not affect duties of Board, chairperson, MD or whole-time director; Section 205(2). Use it to show that responsibility is shared, not shifted to the CS.
Meaning of secretarial standards (section 205, Explanation): Secretarial standards = standards issued by ICSI + approved by the Central Government; SS-1 deals with Board meetings and SS-2 with general meetings. Both conditions must be met.
Duty of the CS on standards (section 205(1)(b)): CS must ensure the company complies with applicable secretarial standards; Section 205(1)(a) also requires reporting to the Board on compliance with the Act, rules and other applicable laws.
Penalty for contravening section 204 (section 204(4)): Company / every officer in default / CS in practice in default: penalty of ₹2,00,000; The words are 'liable to a penalty of two lakh rupees'. It applies to the company, the officers in default and the auditor.
Company's duties under section 204(2) and (3): Give all assistance and facilities; Board explains in full every qualification, observation or remark; The explanation goes in the Board's report under section 134(3).
Lesser penalty (section 446B): Penalty ≤ ½ of specified penalty, subject to a maximum of ₹2,00,000 for a company and ₹1,00,000 for an officer in default or other person; Applies to One Person Company, small company, start-up company or Producer Company.
Adjudication and appeal (section 454): Hearing before penalty → appeal to Regional Director within 60 days of receiving the order; Non-compliance with the order within 90 days attracts a fine on the company of ₹25,000 to ₹5,00,000. An officer or other person in default faces imprisonment up to 6 months or a fine of ₹25,000 to ₹1,00,000, or both.

Quick revision

Section 204: every listed company and prescribed classes of companies need a secretarial audit.
The report is given by a company secretary in practice and annexed to the Board's report under Section 134(3).
The company must give all assistance and facilities for auditing its secretarial and related records.
The Board must explain in full any qualification, observation or other remark in the report.
Section 204(4): the company, every officer in default and the auditor in default are liable to a penalty of two lakh rupees.
Section 205: the company secretary reports to the Board on compliance with the Act, the rules and other applicable laws.
The company secretary also ensures compliance with applicable secretarial standards.
Secretarial standards are those issued by ICSI and approved by the Central Government.
Sections 204 and 205 do not reduce the duties of the Board, chairperson, managing director or whole-time director.
Section 143(14) applies the auditor provisions mutatis mutandis to a company secretary in practice doing secretarial audit.
Fraud reporting under Section 143(12) also binds the secretarial auditor; non-compliance attracts a penalty of five lakh rupees for a listed company and one lakh rupees for others.
In answers, write: provision, facts applied, conclusion.

Common mistakes

Saying secretarial audit gives an opinion on true and fair view of accounts. Fix: Write that it reports on compliance with laws and secretarial records, not on the accounts.
Stating that the auditor can be any professional. Fix: Section 204 requires a company secretary in practice.
Applying the paid-up capital and turnover tests to private companies. Fix: Write 'public company' next to the ₹50 crore and ₹250 crore tests in your notes. Only the borrowing test covers private companies.
Treating the tests as cumulative, so that all must be met. Fix: Treat each condition as a separate trigger. Meeting any one is enough.
Applying the statutory auditor's five-year term and Registrar notice (section 139) to the secretarial auditor. Fix: Remember that section 204 sets no term or rotation. Do not quote the section 139 term or the fifteen-day notice for a secretarial auditor.
Saying any company secretary can be the secretarial auditor. Fix: Write 'company secretary in practice'. This means a CS holding a certificate of practice, not an employee CS.
Treating the secretarial audit report as optional for all companies Fix: Start the answer with the applicability test. Section 204(1) covers every listed company and other prescribed classes of companies.
Saying the Board may ignore the auditor's qualification Fix: The Board need not agree with the auditor, but it must explain in full each qualification, observation or remark in its report.
Listing every law in India as applicable to the company. Fix: Choose the laws that fit the company's type, sector and facts, and say why others are not applicable.
Skipping planning and jumping to the report. Fix: Always open with understanding the company, risk areas and the programme.

Exam tips

Open every answer with the Section 204 definition. Examiners look for the section number.
For difference questions, use at least four heads: purpose, auditor, subject matter and report.
In case studies, state the provision, apply it to the facts, then conclude on whether a secretarial audit report is required.
Mention Section 204(3) and 204(4) in the conclusion for extra marks.
Avoid quoting applicability thresholds unless the question gives them.
Begin the answer with 'Section 204(1) read with Rule 9' and then apply each test to the facts. The marks are for provision, analysis and conclusion.
Look for the private company trap in the case. Large capital and turnover figures do not matter for a private company. Only the borrowing test does.
In borrowing cases, list who the lenders are. Exclude directors, members and group companies from the count.