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CS Professional · Compliance Management, Audit and Due Diligence

Secretarial Audit for CS Professional: Chapter Guide

Secretarial audit is an independent check by a company secretary in practice of a company's secretarial and related records against the law. Under Section 204, listed and prescribed companies annex the report to the Board's report. To solve questions, identify applicability, state the duty, apply it to the facts, and conclude with the consequence.

What this chapter covers

This chapter deals with the secretarial audit of bigger companies. You study what the audit covers, which companies must have it, who does it, what the report looks like, how the audit is planned and carried out, and what happens if the company or the auditor defaults.

The legal base is short. Section 204 requires every listed company, and other prescribed classes of companies, to annex a secretarial audit report given by a company secretary in practice to the Board's report under Section 134(3). Section 205 lists the functions of the company secretary, including reporting to the Board on compliance and ensuring compliance with secretarial standards. Learn the exact wording of both sections. The rules and forms (such as Form MR-3) fill in the detail.

The chapter connects directly to the rest of Paper 3. Compliance Management is the in-house side: the company secretary builds systems to comply. Secretarial audit is the outside check on those systems. It also links to audit and due diligence, because the same skills of planning, evidence, checklists and reporting are used there. Questions are case-based, so expect to apply the sections to a given company.

Paper 3 carries 100 marks, with Audit and Due Diligence worth 60, and this chapter is one of its most practical parts. The law is compact and the same sections come up in many forms: applicability, duties, report contents, penalties. If you can state the provision, apply it to the facts and conclude clearly, you can score well here. It also helps in practice, because secretarial audit is a real professional assignment for a company secretary.

Secretarial Audit: topics in the order to study them

  1. 1Secretarial Audit: Meaning, Scope and ObjectivesStart with the idea and purpose so the later sections make sense.
  2. 2Applicability of Secretarial Audit under Section 204Every case question begins by asking whether the audit applies at all.
  3. 3Appointment and Duties of Secretarial AuditorOnce you know who needs the audit, learn who conducts it and what the company must provide.
  4. 4Functions of Company Secretary under Section 205Read this next to separate the in-house role from the auditor's role.
  5. 5Secretarial Audit Process, Planning and ChecklistNow learn how the audit is actually carried out, step by step.
  6. 6Secretarial Audit Report and Form MR-3The report is the end product, so study it after the process that produces it.
  7. 7Secretarial Standards and Penalties for Non-complianceFinish with the standards and the consequences, which tie the whole chapter together.

How to prepare Secretarial Audit

This chapter is short in law but heavy in application. Prepare it so you can state the rule precisely and then use it on facts.

  1. Read Sections 204 and 205 in the Act itself, line by line, until you can write each sub-section in your own words.
  2. Make a one-page table of who is covered, who audits, what is annexed, and what the Board must do with qualifications or observations.
  3. Learn the structure of Form MR-3 and what a report must cover, then practise listing its parts from memory.
  4. Build a simple audit checklist covering the main Acts and areas a secretarial auditor tests, and learn the planning steps in order.
  5. Learn the penalty position in Section 204(4) and how it applies to the company, its officers and the auditor.
  6. Solve at least five past or practice case questions in the format: provision, analysis of facts, conclusion.
  7. Revise Sections 204 and 205 and the report structure again the day before the exam.

Common mistakes in Secretarial Audit

  • Saying secretarial audit applies to every company.

    Fix: State that it applies to every listed company and to other prescribed classes, then check the facts for the class.

  • Confusing the company secretary's functions under Section 205 with the secretarial auditor's role.

    Fix: Remember that the company secretary works inside the company, while the auditor is a company secretary in practice who reports independently.

  • Quoting the wrong penalty or the wrong persons liable.

    Fix: Learn Section 204(4) as a set: company, every officer in default and the auditor, each liable to a penalty of two lakh rupees. Keep the Section 143(15) amounts separate.

  • Ignoring the Board's duty to respond to the report.

    Fix: Add that the Board must explain in full any qualification, observation or remark in its Board's report.

  • Writing general audit theory instead of answering the facts given.

    Fix: Open with the provision, apply each fact to it, and close with a clear conclusion.

  • Treating Sections 204 and 205 as reducing the Board's own responsibility.

    Fix: Recall that these sections do not affect the duties of the Board, chairperson, managing director or whole-time director.

Last-day revision: Secretarial Audit

  • 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.

Secretarial Audit practice questions

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

What is secretarial audit under Section 204?

It is an audit of the secretarial and related records of a company by a company secretary in practice. Listed companies and other prescribed classes must annex the report to the Board's report. The company must give all assistance and facilities.

Who can conduct a secretarial audit?

Section 204 says the report is given by a company secretary in practice. Section 143(14) also applies the auditor provisions of Section 143 to such a person, with the necessary changes.

What must the Board do about qualifications in the report?

The Board must explain in full any qualification, observation or other remark made by the company secretary in practice. This is done in the Board's report under Section 134(3).

What is the penalty under Section 204?

If the company, any officer of the company or the company secretary in practice contravenes the section, the company, every officer in default or the auditor in default is liable to a penalty of two lakh rupees.

How should I answer case questions on this chapter?

State the relevant provision first, then apply it to the facts given, and finish with a clear conclusion. Add drafting or compliance points where the question asks for them.