These are exciting times for the profession of company secretaries. The profession is in the limelight thanks to the changed Company Act which has made it compulsory for public companies with paid-up capital of Rs 50 crore or turnover of Rs 250 crore to attach a secretarial audit report along with directors report. The already bulky annual report is expected to get bulkier, though that is not the reason why secretarial audit is enforced on companies. Atul H Mehta, president, The Institute of Company Secretaries of India (ICSI) is busy touring states to inform fellow company secretaries on the new responsibilities through the latest audit. During his recent visit for a seminar in Goa, he spoke to SHOMA PATNAIK about the scope of secretarial audit and its importance for good corporate governance
Q: Secretarial audit is happening for the first time in India. Why have other countries not made it compulsory like in India?
There are many firsts happening in India in terms of the Companies Act 2013 such as mandatory CSR, mandatory observance of secretarial standards, mandatory secretarial audit. Additionally, the profession of company secretaries has its origin in commonwealth countries where it has matured. The concept of secretarial audit was conceived by the ICSI and a concept paper on it was first placed before the National Foundation for Corporate Governance. Secretarial audit was one of the recommendations by ICSI to strengthen the corporate governance framework in India. This then found place in the Corporate Governance Voluntary Guidelines, 2009. The Parliamentary Standing Committee also recommended the inclusion of the audit in the Companies Act, 2013 after which incorporated.
Q: How will the audit result in better corporate governance or help shareholders as it is only indicates compliance with laws?
Secretarial audit will definitely lead to better corporate governance as the scope of it includes examining the board processes and practices, as also reporting on compliances. The new Company Act 2013 with the focus on transparency entails extensive and detailed disclosures. Secretarial audit validates such disclosures.
Q: The audit as you said is non-financial, does that make it a paper work kind of exercise?
The audit entails examining and reporting on compliance of laws. It covers the entire gamut of laws applicable specifically to a company and therefore it is much wider and much deeper than a financial audit. It will not be a paper work kind of exercise as the secretarial auditor is expected to go on site and verify the compliances.
Q: How does the new Companies Act, 2013 differ from the 1956 Act and what is your opinion on these changes?
The focus of the Companies Act 2013 is more on self governance. There is emphasis on more transparency and disclosures with the idea that good governance would be driven by the stakeholders. The law has mandated the use of technology to enable wider participation in the decision making process of a company. There is also focus on better investment protection with the introduction of concepts like class action suits. The revised Act has introduced several provisions for strengthening the governance culture like the requirement to have independent directors, constitution of nomination and remuneration committee, performance evaluation of directors, code for independent directors, etc. The old Act of 1956 had served well for nearly six decades but a complete overhaul was essential to keep pace with changing times.
Q: In your opinion, does the new Companies Act enhance the role of the company secretary or limit it?
The new Act definitely has envisaged an enhanced role for company secretary. A company secretary is one of the key managerial personnel of a company. His or her functions has been defined and seen as an advisor to the board on governance matters. A company secretary in practice is perceived as an extended arm of the regulators in monitoring compliance as also promoting better corporate governance.
Q: What is your opinion on the threshold limit of secretarial audit and also the fact that private companies are out of the audit’s ambit?
The threshold limits for Secretarial Audit for public companies with paid-up capital of Rs 50 crore or turnover of Rs 250 crore should be lowered as compliance with laws is not restricted to just bigger public companies. In fact, monitoring of compliances of the smaller public companies and private companies is a bigger challenge. In terms of the previous Companies Act, 1956, it mandated compliance certificate for smaller companies from a company secretary. Now that has been done away with. On the other hand the number of compliances itself have increased enormously and the focus of the new Act is more on self regulation. In this scenario compliance oversight is a challenge and an audit of compliances is essential at least for companies which have accessed public funding whether in the form of loans from banks and financial institutions beyond a certain limit or have accepted deposits from public.
Q: Limiting the role of company secretary in compliance…does it result in lesser demand or jobs for the profession?
Bringing in more companies within the ambit of secretarial audit would certainly result in more opportunities for company secretaries but to attribute ICSI’s stand on the applicability of secretarial audit to this would be incorrect.
Q: Who will benefit from private company secretarial audits?
First of all the company itself, the other stakeholders – regulators, lenders, the employees (secretarial audit also entails checking the adequacy of systems with regard to labour laws) and the public at large.
Q: What are the additional responsibilities on the company secretary due to secretarial audit?
As the audit requires checking compliances of company law, securities laws and laws applicable specifically to the company. It means that the auditor is required to check the laws which are applicable to specific industry for example for banks – all laws applicable to banking industry; for a insurance company – all laws applicable to insurance industry; likewise for a company in petroleum sector – all laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement industry etc., it would cover the entire gamut of laws applicable to a company. In future, the company secretary (whether in employment or in practice) will evolve as an expert in a specific sector.
Q: What are the knowledge areas where company secretaries need to brush up on for secretarial audit and how can they go about it?
A company secretary is an expert in areas viz company law, securities law, competition laws, labour laws, economic laws. However, the scope of secretarial audit as said above is very wide and company secretaries need to build their capacities in sector specific laws.
Q: Will the audit have implications also on the course content of company secretaries? In other words, does the course have to be modified?
Definitely, the course content would also be modified to equip the company secretaries to enable them to conduct an effective audit.
Q: Goa does not offer much scope for secretarial audit or company secretary profession as most units are MSMEs. How can interest in the profession be boosted in Goa?
The Companies Act, 2013 mandates the observance of secretarial standards by all companies. The secretarial standards will promote better governance amongst all corporate by better board processes and better flow of information. Secondly, good corporate governance practices across all companies is the need of the day to be able to attract FDIs and attract the best talent. A company secretary has a huge advisory role in enabling companies to adopt the best governance practices.