for the companies

Secretarial Audit under the Companies Act 2013Companies Act, 2013

Action Pointsfor the Companies

Action Points

February 12, 2015

What do the Companies need to do?

Approach 1 N A tiApproach 1 No Action

Provide Standard Secretarial Records – notices, agendas, minutes, statutory registers, records, disclosures, ROC and

Approach 2, y g , , ,

Stock Exchange filings, ROC File, Stock Exchange File, RBI Files etc.

02

is it sufficient?

03

What the Companies needs to do?

Purpose Unqualified secretarial audit report – ultimate objective ofPurpose Unqualified secretarial audit report – ultimate objective of the audit

An opportunity to ensure that the secretarial and bgovernance practices are robust

Risk of Negativity about compliance in auditors’ mind inaction

Inefficient time investments by the auditors

Inability of other departments to cooperate

Tension, work pressures, overall chaos and inefficiency

Qualified audit report

04

Here’s what the Companies need to do

Secretarial Audit Planning & PreparationSecretarial Audit Planning & Preparation

Organise your audit with your auditors in such a way that you are able to achieve the desired results with the available resources in most efficient manner.

(i) Identify goals; (ii) Formulate strategies; (iii) Arrange means to achieve the goals; and (iv) Monitor steps.

05

Benefits of Secretarial Audit Planning

Audit become an investment than expensesAudit become an investment than expenses

Sufficient time to collect documents, details etc.

Correct issues and alleviates concernsCorrect issues and alleviates concerns

Minimise uncertainties

Better time management

06

Secretarial Audit Planning:Some Quick Tips

Change your mindsetChange your mindset

Prepare throughout the year

Auditors ‐ partner in compliance and governance

Be more formal/ process oriented/ p

Do not allow walk‐in approach

07

Secretarial Audit Planning Strategy : The Blue Print

Post AuditStrategy Audit

Post Audit Discussion and

closure

Pre‐Auditpreparation

Scope

Frequency

Checklist and document requirement

Revalidate audit plan

Administrative

Closure ofqueries

Exit meetingTimelines

Resource deployment

Requisition to other departments

Records/ file il ti d

arrangements

Submit records

Exit meeting

Final report

Escalations

Confidentiality

compilation and updates

Validation + Checklist

Response to queries

Final report

Corrective/ Improvement

actionDocumentation

08

action Documentation

Secretarial Audit planning:Strategy….

Kick off meeting with Auditors:Kick‐off meeting with Auditors:

Briefing about Company and your department

Secretarial records and processes

Positions on various compliance issued by the Companyp y p y

Various formats etc.

Preliminary discussion about audit scope, frequency, timing, engagement

manager, etc.

09

Secretarial Audit Planning: Strategy ‐ Scope

Form No MR 3 broadly requires the auditors to certify the followings:Form No. MR 3 broadly requires the auditors to certify the followings:

Compliance of the Companies Act, the SEBI Act, FEMA, Secretarial

Standards Listing Agreements and allied rules and regulationsStandards Listing Agreements, and allied rules and regulations

Compliance of other specific applicable laws

Existence of internal control

Board processes and compliance mechanism

Board composition and changes in the Board

Notices and Agendas

Significant events (corporate actions)

10

Secretarial Audit Planning Strategy : Scope

Decoding the Audit Scope:

Split the scope into sub categories

Classify in ABC

Decoding the Audit Scope:

y

Incorporate the internal controls and processes

Checklist

Documentation

11

Secretarial Audit Planning :Strategy ‐ Others

FrequencyFrequency

Annual Half yearly Quarterly Concurrent

Timings

Agree on timing for start and

Significant part of audit of audit to

Audit Team

for start and closure of audit

audit of audit to close before March

Audit Team

ConfidentialityInsider Trading Regulations and process

12

Secretarial Audit Planning :Strategy

Sample Annual Audit Plan:

Periodicity Quarter 1 Quarter 2 Quarter 3 Quarter 4

Annual (Special in depth audit)

Insider TradingLoans, Investments& Borrowings

Takeover RegulationsBoard & Board Committee Agendas

SS2External Commercial Borrowings

SS1Listing AgreementDirectors

Overseas Investments Foreign Direct Investments

Clause 49Auditors Engagements

RemunerationCSRInvestor relations

Quarterly (Routine repetitive incremental)

Forms, returns,records




Concurrent (critical non routine documents to be shared with external parties)

Corporate actionsMinutes



Corporate actionsMinutesShareholders communications

13

Secretarial Audit Planning:

Sample Quarterly Audit Plan:

Strategy

Audit Start date : March 5, 2015

Law [ Period] Heading Sub – heading Audit Coverage (Sample Size)

Documents required

FEMA[ Apr – Dec 2014 &

FDI Existing FDI Statutory LimitLimits for the company

FDI/ RBI GuidelinesFIPB ApprovalsD t il f RTA/ ROMdocuments for

existing FDI ]

companyEntity‐wise FDI & Movements RBI Filings & Registrations[Sample Size : 100%]

Details from RTA/ ROMMinutes BookNotice of GMFC‐GPR and RBI Acknowledgement letterFC TRS

CA, 2013[ Apr – Dec 2014]

Loans Employees Transactions Statement of transactions from finance

[Sample Size : 100%] FC‐TRSAnnual FC‐GPRFIRC

[ p ]Related Parties

Non Related Parties

Transactions as per secretarial records

Authorisations

Register of LoansLoan AgreementsBoard ResolutionsAudit Committee Resolution

14

Shareholders Resolutions

Secretarial Audit Planning :Action ‐ Pre‐audit Preparation

Check list and documents requirement

Intimation / requisitionto other

departments

Compilation of records/ update

files

Validation of records / checklist

DocumentationAgenda, notices, minutes, attendance Relevant approvals, permissions etc.g , , ,registersDisclosures and declarations, from directors Statutory Registers Files – ROC, SEs, RBI MOA AOA Annual Reports

Details of investments, loans and guarantees, borrowings, depositsCompliance CertificatesAudit specific documents:confirmations from cross functional teamsMOA, AOA, Annual Reports

Documents relating to specific corporateactions/eventsProceedings / investigations etc

confirmations from cross functional teamswhere details are nil / not possibleManagerial remuneration detailsOrganisational structureCSR Reports

15

Secretarial Audit Planning :Action : Pre‐audit Preparation

Ensure the following:Ensure the following:

Identify significant transactions

Support the transactions compliance documentsSupport the transactions compliance documents

Review and ensure accuracy and consistency

Refer the previous year audit findingsp y g

Check authenticity before submission

Common Errors:

Incomplete filesHygiene issues

16

Secretarial Audit Planning :Actions : During Audit

Audit commencement meeting:

Update about previous audit issues closuresUpdate about previous audit issues closures

Revalidate scope

Update about significant developments

Check for fresh documents requirement, if any

Submit your documents, check lists etc.

Designate a spoke for dealing with the auditors g p g

Provide records/ clarifications promptly upon requisition

Share copies of documents for justified demand only

F i t i tifi d f t tFor minutes ‐ issue certified copy of extracts

Keep copy of the other documents

Ensure administrative arrangements

17

Actions for the company Actions : Post Audit

Audit QueriesQ

Beyond routine compliances and documents requisitions e.g. oninterpretational issues

Exit Meeting

Complex issues

Draft reportDraft report

Other audit findings and comments

Suggestions and improvement actions

Escalations

Final Report

Improvement action plan p o e e t act o p a

18

Some Specific Issues:Internal Control and Processes

I/We hereby report … also that the Company has proper Board‐processes andReference Clauses of Form MR 3:I/We hereby report … also that the Company has proper Board processes andcompliance mechanism in place to the extent, in the manner and subject to thereporting made hereinafter

I/ e f rther report that there are adeq ate s stems and processes in theI/we further report that there are adequate systems and processes in thecompany commensurate with the size and operations of the company tomonitor and ensure compliance with applicable laws, rules, regulations andguidelinesguidelines

Standing Operating

Formal mails / communications

to other

ProcessNotes

Check lists / self auditingProcedures to other

departments

Notes auditing

Employee Delegation of Periodical

19

Employeehandbook

Delegation of authority

PeriodicalConfirmation

Some Specific Issues:Fraud Reporting

Section 143 of the Companies Act, 2013:

(12) Notwithstanding anything contained in this section, if an auditor of a company, in thecourse of the performance of his duties as auditor, has reason to believe that anoffence involving fraud is being or has been committed against the company byofficers or employees of the company he shall immediately report the matter to theofficers or employees of the company, he shall immediately report the matter to theCentral Government within such time and in such manner as may be prescribed.

(14) The provisions of this section shall mutatis mutandis apply to(b) the company secretary in practice conducting secretarial audit under section 204

Tips for the companiesOnly secretarial audit related fraud needs to be reported by the secretarial auditor.

Escalate the issue internally before reporting by the auditors to the government.

Report to the Board and the audit committee

20

Report to the Board and the audit committee.

Some Specific Issues:

List out all applicable laws

Compliance of All Applicable Laws

List out all applicable laws

Process for execution of compliance certificates

Compliance certificatesCompliance certificates

Sample back up papers (compliance check lists, functional certificates etc.)

Any exception to the compliance certificatey p p

21

Thank YouThank You

CS Rajendra Chopra

Vice President and Group Head – Corporate Secretarial Bharti Enterprises