Private Ltd Companies May Have To Do Secretarial Audit In If The Public Interest In Them Is Large: Corp Affairs Secy

It might soon become mandatory for private limited companies to do a secretarial audit if public interest in them is large, as defined by their exposure to debt, Corporate Affairs secretary Injeti Srinivas has announced.

Although private companies do not raise funds from the public in terms of equity, exposure to financial institutions and banks make them key players in the system and hence need greater oversight, as per the government.

A secretarial audit might be necessary in cases where companies have borrowed heavily from banks.

Secretarial audit is an audit of compliance of the Companies Act, securities laws, Foreign Exchange Management Act and various regulations and guidelines. It is done by a company secretary and is different from the statutory audit performed by chartered accountants.

At present, secretarial audit is compulsory for listed companies and large public limited companies defined in terms of their paid-up capital and turnover and soon this could be extended to private companies as well.

Private limited companies have comparatively less disclosure requirements compared to public limited ones. To get listed, a private limited entity has to first become a public limited company.

Secretarial audit is at present applicable on private companies that are subsidiaries of listed entities.

The move to extend secretarial audit to private limited companies is expected to improve compliance. Also, it will help to bring to light compliance related issues that the statutory auditor who does financial audit of companies does not flag.

The spate of corporate governance failures in systemically important entities in the recent past including in Infrastructure Leasing & Financial Services Ltd. has prompted the government to tighten rules and step up oversight of the auditing and rating agencies while addressing the liquidity concerns of businesses.