Compliance Management, Audit and Due Diligence · Secretarial Audit

Appointment and Duties of Secretarial Auditor

Updated 11 October 2026 · Fact-checked

Under section 204, a listed company and prescribed classes of companies must annex a secretarial audit report, given by a company secretary in practice, to the Board's report. You appoint a practising CS, usually by Board resolution, check eligibility, issue an engagement letter, and give full access to records. The auditor reports compliance in Form MR-3.

Understand Appointment and Duties of Secretarial Auditor

A secretarial audit is an independent check of whether a company has followed the laws and rules that apply to it, and whether its secretarial records are in order. Section 204 makes it compulsory for bigger companies.

Section 204(1) applies to every listed company and to other classes of companies as may be prescribed in the rules. Those companies must annex a secretarial audit report to the Board's report made under section 134(3). The report must be given by a company secretary in practice, in the prescribed form (Form MR-3). So the auditor must hold a certificate of practice. A CS in employment cannot sign it.

Section 204 itself does not lay down a term of office, a rotation cycle or a detailed appointment procedure. This is different from the statutory auditor under section 139, where the term is five years and the Registrar must be notified within fifteen days. In practice the Board appoints the secretarial auditor by resolution, fixes the scope and fee, and the appointee consents. For listed entities, SEBI's listing regulations, as amended, add their own requirements on shareholder approval, tenure and peer review. Check the current regulation text before you quote details in an exam.

The duties run in three directions. The company must give all assistance and facilities for auditing its secretarial and related records (section 204(2)). The auditor must examine the records and report honestly, including any qualification or observation. The Board must explain in full every qualification, observation or other remark in its own report (section 204(3)). If anyone breaches section 204, the company, every officer in default and the company secretary in practice are each liable to a penalty of two lakh rupees (section 204(4)).

Keep the link with section 205 clear. Section 205 lists the functions of the company secretary (reporting compliance to the Board, ensuring compliance with secretarial standards). Section 204 is the audit by an outside practising CS. The two do not reduce the duties of directors (section 205(2)).

Key rules to remember

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.

How to solve Appointment and Duties of Secretarial Auditor questions

Most questions give a company and ask whether a secretarial audit applies, who can be appointed, how, and what each party must do. Use one sequence for all of them.

1Check applicability. Is the company listed? If not, does it fall in a prescribed class by paid-up capital, turnover or borrowings? State the test you applied.
2Check the appointee. The auditor must be a company secretary in practice. Note any conflict of interest or independence issue in the facts.
3State the appointment process. Board resolution appointing the auditor, consent from the auditor, scope and fee, engagement letter. For a listed company, mention the additional SEBI requirements without quoting regulation numbers you are unsure of.
4State the company's duty. Give all assistance and facilities for auditing secretarial and related records (section 204(2)).
5State the auditor's work and output. Examine compliance with applicable laws and secretarial standards, and issue the report in Form MR-3 for annexing to the Board's report.
6State the Board's duty. Explain in full any qualification or observation in the Board's report (section 204(3)).
7Apply the consequence. If the facts show a lapse, give the penalty of two lakh rupees on the company, the officers in default and the CS in default (section 204(4)).
8Conclude in one line that answers the exact question asked.

Quickest way: A-B-C-D check for secretarial auditor questions

When to use it: Use when the question is short, or when you have about five minutes for a 5 to 8 mark answer.

A for Applicability: listed, or a prescribed class. Say which.
B for Body appointing: Board resolution, with consent and engagement letter of the practising CS.
C for Conduct: company gives facilities, auditor reports in MR-3, annexed to the Board's report.
D for Defaults: Board explains qualifications, otherwise ₹2,00,000 penalty on each person in default.

Common mistakes in Appointment and Duties of Secretarial Auditor

Applying the statutory auditor's five-year term and Registrar notice (section 139) to the secretarial auditor.
Both are called auditors and both are appointed by the company, so the rules blur together.
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.
Students read 'company secretary' and stop there.
Fix: Write 'company secretary in practice'. This means a CS holding a certificate of practice, not an employee CS.
Stating that only listed companies need a secretarial audit.
Section 204 names listed companies first, and the prescribed classes are in the rules, which students skip.
Fix: Write both limbs: every listed company and other prescribed classes of companies. Add that prescribed classes depend on size tests in the rules.
Forgetting the Board's duty to explain qualifications.
Students focus on the auditor and treat the report as the end of the process.
Fix: Always add that the Board must explain in full any qualification, observation or remark in its report (section 204(3)).
Saying only the company is penalised under section 204.
Students recall the penalty figure but not who bears it.
Fix: State that the company, every officer in default and the CS in practice in default are each liable to a penalty of two lakh rupees.
Mixing up sections 204 and 205.
They are adjacent and both concern the company secretary.
Fix: Section 204 is the audit by an outside practising CS. Section 205 sets the functions of the company secretary as an officer. Keep them in separate paragraphs.

Worked examples

Example 1

Sunrise Textiles Limited, a listed company, wants to appoint a secretarial auditor for the financial year. Its company secretary, Mr. Rao, who is in its employment, offers to sign the report to save cost. Advise the Board on eligibility and the steps for appointment.

Show the solution

Applicability: Sunrise Textiles is a listed company, so section 204(1) applies to it directly.
Eligibility: the report must be given by a company secretary in practice. Mr. Rao is an employee, so he cannot be the secretarial auditor.
Appointment: the Board should select a practising CS or a firm of practising company secretaries, obtain consent, check independence, fix scope and fee, and pass a Board resolution. As the company is listed, it must also meet the SEBI listing regulation requirements on approval and tenure.
Engagement: issue an engagement letter stating scope, laws covered, and reporting in Form MR-3.
Company's duty: give all assistance and facilities for auditing the secretarial and related records (section 204(2)).
Reporting: the report is annexed to the Board's report under section 134(3), and the Board explains in full any qualification or observation (section 204(3)).

Answer: Mr. Rao cannot act, because only a company secretary in practice can give the report. The Board should appoint an independent practising CS by resolution, issue an engagement letter, provide full facilities, annex the Form MR-3 report to the Board's report and explain any qualification.

Example 2

Greenfield Components Limited is an unlisted public company with a secretarial audit applicable to it. The practising CS issued a report with two qualifications on late filing of forms. The Board's report only said 'The qualifications are self-explanatory.' The company also refused to give the auditor the minutes books of subsidiaries' board meetings that it held. State the legal position.

Show the solution

Duty to assist: section 204(2) requires the company to give all assistance and facilities for auditing the secretarial and related records. Refusing records that are needed for the audit is a failure of this duty, unless they are outside the audit scope.
Duty to explain: section 204(3) requires the Board to explain in full any qualification, observation or other remark. 'Self-explanatory' is not an explanation.
Consequence: under section 204(4), if the company or any officer contravenes section 204, the company and every officer in default is liable to a penalty of two lakh rupees.
Auditor's position: the CS in practice should record the limitation in the report. The CS is also liable to the same penalty only if the CS contravenes the section, for example by giving a report that does not meet the section's requirements.
Remedy: the Board should give the records, and give a specific reason and corrective action for each qualification in its report.

Answer: The company has breached section 204(2) by refusing needed records and section 204(3) by not explaining the qualifications in full. The company and every officer in default are each liable to a penalty of ₹2,00,000 under section 204(4). The Board should provide the records and give a full explanation.

Exam tips

Open every answer with the two limbs of applicability: listed companies, and other prescribed classes. Examiners look for both.
Quote section 204(1) to (4) by sub-section. Each sub-section is a separate mark: report, assistance, Board explanation, penalty.
If the question gives financial figures, test them against the prescribed class thresholds in the current rules and state the result before giving advice.
For drafting-style questions, give the resolution wording: who is appointed, for which year, the scope, the form of report, the fee and the authority given to a director or the CS to sign the letter.
Do not import section 139 rules on term and Registrar notice. If you must contrast, say so explicitly as a contrast.

Practice questions from Secretarial Audit

Appointment and Duties of Secretarial Auditor in other exams

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

Appointment and Duties of Secretarial Auditor: frequently asked questions

Who can be appointed as secretarial auditor?

Section 204(1) requires the report to be given by a company secretary in practice. That means a CS holding a certificate of practice, and in practice firms of practising company secretaries are engaged too. An employee CS cannot give the report. The appointee should also be independent of the company.

Who appoints the secretarial auditor, the Board or the members?

Section 204 does not name the appointing authority. In practice the Board appoints the auditor by resolution and fixes the terms. For listed entities, SEBI's listing regulations add requirements on shareholder approval and tenure, so check the current regulation text.

What must the Board do about qualifications in the secretarial audit report?

Section 204(3) requires the Board to explain in full any qualification, observation or other remark made by the company secretary in practice. The explanation goes in the Board's report. A vague statement is not enough.

What is the penalty for contravening section 204?

The company, every officer in default and the company secretary in practice in default are each liable to a penalty of two lakh rupees under section 204(4).