As a business owner, you might be aware of the various audits that are conducted to assess the financial health and compliance of your company. But have you heard about secretarial audits? In this blog post, we’ll discuss what secretarial audits are, their importance for your business, and how to conduct them.
What are secretarial audits?
A secretarial audit is a vital tool for ensuring that a company’s secretarial and administrative functions are compliant with the legal and regulatory framework. The audit is carried out by a qualified company secretary who is independent of the company and its operations. The auditor examines the company’s records, documents, and procedures related to corporate governance, board meetings, statutory filings, and other legal and regulatory requirements.
The secretarial audit focuses on verifying compliance with the Companies Act, 2008, and other applicable laws, regulations, and guidelines. It ensures that the company’s board of directors and management are aware of their legal obligations and have implemented appropriate measures to meet these requirements. The audit aims to identify any gaps, discrepancies, or non-compliance issues in the company’s secretarial and administrative functions, which could potentially result in legal or financial liabilities.
Once the audit is complete, the auditor issues a report outlining their findings, observations, and recommendations. The report provides valuable insights into the company’s compliance status and highlights areas that require improvement. It serves as a useful tool for the company’s management and board of directors to identify areas of risk and to take corrective action to improve compliance.
The benefit to your business
Conducting a secretarial audit can offer several benefits to your business, including:
- Compliance: A secretarial audit ensures that your company is complying with the legal and regulatory requirements. This can help avoid penalties, fines, or legal actions that may arise due to non-compliance.
- Risk Management: A secretarial audit can help identify potential areas of risk and non-compliance in your company’s operations. This allows you to take corrective action and mitigate the risks before they escalate.
- Transparency: A secretarial audit provides transparency in your company’s operations and enhances its reputation. It demonstrates your commitment to complying with the laws and regulations. Additionally, it helps build trust with stakeholders, including investors, lenders, customers, and employees.
- Efficiency: A secretarial audit can help streamline your company’s operations by identifying areas of inefficiency, duplication, or overlap. This can result in cost savings, improved productivity, and better resource allocation.
How to conduct a secretarial audit
Conducting a secretarial audit requires a systematic and thorough approach. It is essential that the audit should be completed by a qualified and competent company secretary. Here are the steps involved in conducting a secretarial audit:
- Planning: A business must define the scope and objectives of the audit, identify the key areas to be audited, and determine the audit methodology.
- Data collection: Collect and review relevant documents, records, and information related to the areas to be audited. This includes board resolutions, annual reports, statutory filings, minutes of meetings, contracts, agreements, and policies.
- Audit procedures: Develop audit procedures based on the scope and objectives of the audit. This may involve interviewing key personnel, reviewing processes and procedures, and conducting tests to verify compliance.
- Analysis and reporting: Analyse the findings, observations, and recommendations arising from the audit procedures. Prepare a report outlining the results of the audit, including any non-compliance issues, risks, or areas for improvement. The report should also include recommendations for corrective actions and follow-up procedures.
Who should conduct an audit?
In South Africa, the Companies Act of 2008 requires some companies to conduct an annual audit of their financial statements. It sets out different requirements based on the size and nature of the company.
For instance, in terms of Section 26(2) of the Companies Act, a company must have its annual financial statements audited by an independent auditor if it meets any two of the following criteria:
- Total assets exceed R10 million
- Turnover exceeds R20 million
- The company has more than 50 employees
However, if a company meets at least one of the above criteria but not more than two, it may elect to have an independent review of its financial statements rather than a full audit.
Furthermore, companies that are not required to have their financial statements audited or reviewed may still decide to conduct a secretarial audit. This compliance with various legal and regulatory requirements related to corporate governance and administration.
Companies must meet specific criteria before they are required to have an audit or review, and a secretarial audit is a separate and voluntary process that companies may choose to undertake.
When should you conduct a secretarial audit?
It is recommended to conduct a secretarial audit at least once a year. Doing so ensures that the company is complying with all the relevant laws and regulations. Additionally, a secretarial audit may be required by law in certain circumstances, such as when the company is listed on a stock exchange or when it is being audited by the South African Revenue Service. For SMEs, understanding the situations in which a secretarial audit should be conducted is important to ensure compliance and mitigate risks. An audit may be required in the following instances:
– Change in management: A change in the company’s management, such as a change in the board of directors, warrants a secretarial audit to ensure that the new management is complying with the legal and regulatory requirements.
– Merger and acquisition: When an SME merges with or acquires another company, a secretarial audit can help identify any compliance or legal issues that may arise due to the merger or acquisition.
– Initial public offering (IPO): If an SME is planning to go public, they should conduct a secretarial audit. This is to ensure that their processes, procedures, and compliance requirements are in line with the regulatory framework.
– Investor due diligence: When seeking funding or investment, SMEs may be required to undergo an investor due diligence process. Conducting a secretarial audit beforehand can help identify any compliance or legal issues that may impact the investment decision.
– Periodic review: Even if not mandatory, it is recommended that SMEs undergo a secretarial audit periodically to identify any potential areas of non-compliance, mitigate risks, and improve operations.
In conclusion
The frequency of secretarial audits for SMEs may vary depending on the company’s specific circumstances and requirements. Some SMEs may opt for an annual audit. However, others may conduct a voluntary audit every few years to ensure compliance and mitigate risks. SMEs undergoing significant changes or events, such as a merger or acquisition, may require a one-time audit to ensure a smooth transition. Ultimately, the decision to conduct a secretarial audit should be based on the SME’s specific needs and requirements.
A secretarial audit is a crucial aspect of corporate governance and compliance. It can help your business identify potential risks and non-compliance issues, streamline operations, and build trust with stakeholders. By conducting a secretarial audit, you can ensure that your company is compliant with the laws and regulations governing it. You also ensure that it operates efficiently and effectively. Contact the Acumen Group for expert secretarial work to prepare you for any potential audit.