Compliance Management, Audit and Due Diligence · Concepts of Various Audits

Secretarial Audit under Section 204 and Form MR-3

Updated 11 October 2026 · Fact-checked

Secretarial audit is an independent check of whether a company follows the laws, rules and secretarial standards that apply to it. Under Section 204, certain companies must get it done by a practising company secretary, who reports in Form MR-3. To answer questions, state applicability, scope, procedure and report contents in order.

Understand Secretarial Audit

A company must follow many laws: the Companies Act, securities laws, FEMA and sector laws. Secretarial audit is a check, by an independent professional, of whether the company has actually complied with them. It gives the board and shareholders assurance on compliance, not on the financial statements.

This is the main difference from statutory audit. A statutory auditor gives an opinion on whether the financial statements show a true and fair view. A secretarial auditor reports on legal and procedural compliance and on the company's compliance systems. The statutory auditor is appointed by members. Section 204 requires the covered companies to annex a secretarial audit report, given by a company secretary in practice (or a firm of company secretaries in practice), to the board's report. For non-listed companies, the board makes the appointment in practice, under Section 204 read with Rule 9 and the board's general powers. For listed companies, Regulation 24A of the SEBI Listing Regulations (since 1 April 2025) requires the appointment or re-appointment to be approved by shareholders at the AGM, based on a board recommendation. Reg. 24A fixes the term at up to 5 years for an individual and up to two terms of 5 years for a firm.

Section 204 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 covers:

every listed company;
every unlisted public company with paid-up share capital of ₹50 crore or more on the last day of the preceding financial year;
every unlisted public company with turnover of ₹250 crore or more during the preceding financial year;
every unlisted public company with outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more during the preceding financial year.

A private company is not covered by Rule 9 itself. The SEBI Listing Regulations add their own requirements for listed entities and their material unlisted subsidiaries, so a private company can be caught only through that route.

The report is made in Form MR-3 and is attached to the board's report. The secretarial auditor must state any qualification, reservation or adverse remark. The board must explain each such remark in its report. This is why the audit works as a control: weaknesses become visible to shareholders.

The work follows the usual audit logic: plan, collect evidence, test against the law, conclude, report. For the written paper, show that logic in your answer.

Key rules to remember

Authority for secretarial audit: Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014; Cite both when answering on applicability.
Who must get it done: Every listed company + unlisted public companies with paid-up capital ₹50 crore or more, or turnover ₹250 crore or more, or outstanding loans or borrowings from banks or public financial institutions ₹100 crore or more; Test paid-up capital on the last day of the preceding financial year. Test turnover and borrowings by reference to the preceding financial year. SEBI Listing Regulations separately cover material unlisted subsidiaries of listed entities.
Who can conduct it: Company secretary in practice, or a firm of company secretaries in practice, holding a valid certificate of practice; Section 204 requires the report to be annexed to the board's report. For non-listed companies, the board appoints. For listed companies, Reg. 24A of the SEBI Listing Regulations (since 1 April 2025) requires shareholder approval at the AGM, based on a board recommendation. The term is up to 5 years for an individual and up to two terms of 5 years for a firm.
Report form: Form MR-3, annexed to the board's report; Qualifications, reservations or adverse remarks must be explained by the board in its report.
Matters covered by the audit: Companies Act and rules + Securities Contracts (Regulation) Act, Depositories Act, SEBI laws + FEMA (FDI, ODI, ECB) + other applicable laws + Secretarial Standards + listing agreements/regulations; Learn this as the scope list and add the sector laws relevant to the company in the question.

How to solve Secretarial Audit questions

Use this method for any question on secretarial audit, whether it is theory, applicability or a case.

1Identify what the question asks: applicability, appointment, scope, procedure, report or comparison.
2State the legal source: Section 204 and the related rules, and SEBI Listing Regulations if the company is listed.
3Apply the facts: check whether the company is listed, or crosses the paid-up capital or borrowing tests, and decide if the audit is mandatory.
4Set out the scope by listing the laws covered and the secretarial standards, tied to the facts of the company.
5Describe the procedure briefly: appointment by board, planning, checklist, evidence, testing, draft findings, final report.
6Explain the reporting: Form MR-3, qualifications and remarks, annexure to the board's report and the board's duty to explain.
7Conclude clearly with a one-line answer to the question asked, and add one practical point such as the penalty or follow-up.

Quickest way: A-S-P-R: Applicability, Scope, Procedure, Report

When to use it: Use for short-answer and case questions when time is limited.

A: Say who must have the audit and test the company in the question against this.
S: List the laws covered, in one line each.
P: Give four to five procedure points: appointment, planning, testing, findings, report.
R: Name Form MR-3, the board report annexure and the duty to explain qualifications.
Close with the conclusion in one sentence.

Common mistakes in Secretarial Audit

Treating secretarial audit as an audit of the financial statements.
The word audit is linked to accounts from the statutory audit chapter.
Fix: Write that it checks legal and procedural compliance and the compliance system, not true and fair view of accounts.
Saying every company needs a secretarial audit.
Students overgeneralise the rule.
Fix: State that it applies to listed companies and other prescribed companies, and test the facts given.
Quoting thresholds from memory without checking them.
Thresholds are in rules and can change.
Fix: Learn them from your current study material and state them with the rule name.
Treating the secretarial auditor's appointment as identical to a statutory auditor's.
Confusion between the two appointment procedures.
Fix: Write that Section 204 requires the report of a company secretary in practice (or a firm) to be annexed to the board's report. For a non-listed company the board appoints. For a listed company, the appointment needs shareholder approval at the AGM under Reg. 24A of the SEBI Listing Regulations, based on a board recommendation.
Ignoring the board's duty after a qualification.
Students stop at the auditor's report.
Fix: Add that the board must give explanations or comments on each qualification, reservation or adverse remark in its report.
Writing a general answer without applying the facts of the question.
Memorised notes are copied.
Fix: Start with the facts: type of company, listing status, size, then conclude.

Worked examples

Example 1

Sunrise Textiles Limited is a listed public company. Its directors ask whether a secretarial audit is required and who can carry it out. Advise.

Show the solution

Provision: Section 204 requires prescribed companies to annex a secretarial audit report, given by a practising company secretary, to the board's report.
Facts: Sunrise Textiles is a listed company, and listed companies fall within the class covered by the Section 204 rules.
Analysis: Listing status alone brings it within the requirement, so no further threshold test is needed.
Who conducts: a company secretary in practice, or a firm of company secretaries in practice, holding a valid certificate of practice. As the company is listed, Reg. 24A of the SEBI Listing Regulations applies: the board recommends the appointment and shareholders must approve it at the AGM.
Report: the auditor reports in Form MR-3, which is annexed to the board's report.

Answer: Yes. Sunrise Textiles, being a listed company, must get a secretarial audit done by a company secretary in practice (or a firm of company secretaries in practice). The appointment or re-appointment must be approved by shareholders at the AGM, based on the board's recommendation, under Reg. 24A of the SEBI Listing Regulations. The Form MR-3 report must be annexed to the board's report.

Example 2

The secretarial auditor of Kaveri Pharma Limited reports in Form MR-3 that the company delayed filing of certain forms with the Registrar. What should the board do, and how does this audit differ from statutory audit?

Show the solution

Provision: Section 204 requires the report to be annexed to the board's report, and the board must deal with qualifications, reservations or adverse remarks.
Analysis: A delayed filing is a non-compliance, so it will appear as a remark in MR-3.
Board action: the board must give explanations or comments on the remark in its report, and should also correct the default and strengthen the compliance system.
Comparison, subject: statutory audit gives an opinion on the financial statements; secretarial audit reports on compliance with laws and secretarial standards.
Comparison, auditor and report: statutory auditor is appointed by members and reports under the Companies Act; secretarial auditor is a company secretary in practice (or a firm), appointed by the board if the company is not listed, or approved by shareholders at the AGM on the board's recommendation if it is listed (Reg. 24A), and reports in Form MR-3.

Answer: The board must explain the remark in its report and fix the default. Secretarial audit checks legal compliance, while statutory audit checks whether the financial statements give a true and fair view.

Exam tips

Begin answers with Section 204 and the rules, then apply the facts, as the paper is case-based.
For comparison questions, use two columns of points in plain lines: subject, auditor, appointment, report, purpose.
Link secretarial audit to the board's report. Examiners reward the board's duty to explain remarks.
If the company in the case is listed, mention the SEBI Listing Regulations along with Section 204.
Verify thresholds and any latest amendments in the current study material before the exam.

Practice questions from Concepts of Various Audits

Secretarial Audit in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Secretarial Audit: frequently asked questions

Who is eligible to conduct a secretarial audit under Section 204?

A company secretary in practice, or a firm of company secretaries in practice, holding a valid certificate of practice. For non-listed companies, the board makes the appointment. For listed companies, Reg. 24A of the SEBI Listing Regulations (since 1 April 2025) requires shareholder approval at the AGM, based on a board recommendation. The term is up to 5 years for an individual and up to two terms of 5 years for a firm.

What is Form MR-3?

Form MR-3 is the prescribed format of the secretarial audit report. It is annexed to the board's report and includes the auditor's findings and any qualifications, reservations or adverse remarks.

What is the difference between secretarial audit and statutory audit?

Statutory audit gives an opinion on the financial statements. Secretarial audit checks compliance with company law, securities law, FEMA, other applicable laws and secretarial standards.

Is secretarial audit mandatory for all companies?

No. Rule 9 covers (a) every listed company, and unlisted public companies with (b) paid-up share capital of ₹50 crore or more on the last day of the preceding financial year, (c) turnover of ₹250 crore or more during the preceding financial year, or (d) outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more during the preceding financial year. A private company comes in only through the SEBI regime for material unlisted subsidiaries of listed entities. Any other company is not required to get it done, though it may appoint a secretarial auditor voluntarily.