Understanding the Role and Requirements of Secretarial Audit

Every year, thousands of companies in India file their financial audit reports without a second thought. But there is another audit that many students and even young professionals overlook, one that checks not the money, but the conduct. This is the secretarial audit, a compliance check that looks at whether a company is actually following the law, not just reporting its numbers correctly. For anyone studying company law, understanding this concept is essential because it sits at the heart of modern corporate governance.

What is a secretarial audit 🔗

A secretarial audit is an independent verification of a company’s compliance with applicable laws, rules, regulations, and procedures. Unlike a financial audit, which examines books of accounts and financial statements, a secretarial audit examines non-financial compliance: whether board meetings were held properly, whether statutory registers were maintained, whether filings were made on time, and whether the company followed the procedural requirements laid down under various statutes.

This audit is conducted by a Company Secretary in Practice (PCS), someone who holds a valid Certificate of Practice from the Institute of Company Secretaries of India. Only such a professional is authorised to issue the secretarial audit report, and no one else, including an in-house company secretary who is an employee, can sign it.

The legal foundation: Section 204 🔗

Secretarial audit is governed by Section 204 of the Companies Act, 2013, which requires every listed company and certain other prescribed classes of companies to annex a secretarial audit report to their Board’s Report. The company is also legally obligated to give the practicing company secretary full access to records and cooperation needed to complete the audit. If the auditor raises any qualification or adverse remark in the report, the Board of Directors must explain it fully in their own report to shareholders.

This isn’t a voluntary best practice for the companies it applies to. It’s a statutory obligation, and skipping it invites regulatory action.

Which companies must undergo a secretarial audit 🔗

The applicability rules are laid out under Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. A company falls within scope if it meets any one of the following criteria, and not necessarily all of them together.

An important nuance here: private companies are generally exempt, unless they are a subsidiary of a public company or they cross the borrowing threshold mentioned above. This is where students often get confused in exams, so it helps to remember that the thresholds are calculated based on the figures in the latest audited financial statement, and meeting even one condition triggers the requirement, as explained in this detailed breakdown of applicability criteria.

Listed companies face an extra layer 🔗

Beyond the Companies Act, listed entities have an additional obligation under Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This SEBI framework requires every listed entity and its material unlisted Indian subsidiaries to obtain both a secretarial audit report and a separate Annual Secretarial Compliance Report, which specifically checks adherence to SEBI regulations and must reach the stock exchanges within 60 days of the financial year’s end.

How the audit process actually works 🔗

The process begins with the Board of Directors, not the shareholders, appointing the practicing company secretary through a board resolution. This is different from a statutory financial auditor, who is appointed by shareholders in the Annual General Meeting. The company must also file this appointment with the Registrar of Companies where applicable.

Once appointed, the PCS examines company records on a test-check basis, meaning a sample verification rather than a line-by-line review of every single document. The scope typically covers the Companies Act itself, securities laws such as the SEBI Act and depository regulations, foreign exchange laws under FEMA, and other laws specifically applicable to the company’s industry.

The MR-3 report 🔗

The findings are documented in a prescribed format known as Form MR-3. This report is annexed to the company’s Board’s Report and placed before shareholders at the Annual General Meeting. According to the ICSI Guidance Note on Secretarial Audit, the report must clearly state whether the company has complied with the applicable laws, and any deviation or non-compliance must be specifically flagged rather than glossed over.

Recent tightening for listed companies 🔗

Corporate governance requirements evolve, and listed companies now face stricter conditions. Under changes effective from April 1, 2025, a secretarial auditor for a listed entity must additionally hold a valid peer review certificate from ICSI. Firms and individual practitioners without this credential cannot take up such assignments anymore. This detail is confirmed in SEBI’s official FAQ on the LODR amendments, which also clarifies rules around auditor tenure and reappointment.

These tightened norms reflect a broader regulatory push to ensure that the people signing off on governance compliance are themselves subject to quality checks, not just ticking boxes.

What happens if a company skips it 🔗

Non-compliance isn’t a minor lapse. If a company that falls under the mandatory criteria fails to get a secretarial audit done, both the company and every officer in default, along with the practicing company secretary if they are at fault, become liable to penalties under Section 204(4). As detailed in this comprehensive guide to secretarial audit in India, the penalty was revised through the Companies (Amendment) Act, 2020, and now stands at a fixed amount per defaulting party rather than the earlier range-based fine structure.

Beyond the monetary penalty, there’s a reputational cost. Investors, lenders, and regulators view a missing or qualified secretarial audit report as a red flag about the company’s internal governance discipline.

Why this audit matters beyond compliance 🔗

It’s tempting to treat secretarial audit as just another regulatory checkbox, but its real value lies in what it signals. A clean secretarial audit report tells shareholders, lenders, and regulators that the company’s internal processes, from board meeting procedures to statutory filings, are functioning as they should. This builds trust in a way that financial statements alone cannot, because financial numbers can look healthy even when governance practices are weak.

For a growing economy where family-run businesses are transitioning into professionally managed public companies, this kind of independent, procedural check acts as an early warning system. It catches governance gaps before they turn into larger scandals or shareholder disputes. That is also why the scope keeps expanding, from a narrow requirement for listed companies in 2014 to now covering large public companies and even certain private companies with heavy borrowings.

A quick way to remember the essentials 🔗

• Who conducts it: A Company Secretary in Practice, appointed by the Board
• What it checks: Non-financial, legal and procedural compliance
• Report format: Form MR-3, annexed to the Board’s Report
• Who it applies to: Listed companies and public companies crossing specific capital, turnover, or borrowing thresholds
• Extra layer for listed firms: Annual Secretarial Compliance Report under SEBI LODR Regulation 24A

What do you think? Should the government extend mandatory secretarial audits to a wider set of private companies to catch governance failures earlier, or would that create an unnecessary compliance burden on smaller businesses? And as peer review requirements tighten for listed company auditors, will this genuinely raise audit quality, or simply push up compliance costs without changing outcomes?

References

1. https://ibclaw.in/section-204-of-the-companies-act-2013-secretarial-audit-for-bigger-companies/
2. https://taxguru.in/company-law/applicability-secretarial-audit-companies-act-2013.html
3. https://www.sebi.gov.in/legal/circulars/feb-2019/format-for-annual-secretarial-audit-report-and-annual-secretarial-compliance-report-for-listed-entities-and-their-material-subsidiaries_42015.html
4. https://www.icsi.edu/media/webmodules/Guidance%20Note%20on%20Secretarial%20Audit%20-%20Release%201.4.pdf
5. https://www.sebi.gov.in/sebi_data/faqfiles/apr-2025/1745399101865.pdf
6. https://www.pkcindia.com/blog/secretarial-audit/