-Format under Regulation 24A
By Pammy Jaiswal (email@example.com)
The LODR (Amendment) Regulations, 2018 based on the recommendation of the Kotak Committee brought many changes on corporate governance. These changes included the requirement of annexing a secretarial audit report for both the listed entity and its material subsidiary in a specified format. Regulation 24A was inserted to be effective for the year ended on March 31, 2019.
SEBI vide its circular dated 8th February, 2019, specified the format for annual secretarial compliance report which is required to be annexed to the annual report for the financial year 2018-19. While the amendment does not refer to two separate reports i.e. annual secretarial report and annual secretarial compliance report, however, the circular provides for the same.
It states that listed entities and their material unlisted subsidiaries can continue to follow the format given under section 204 of the Companies Act, 2013 read with its rules (MR-3), the listed entity will still be required to annex a separate report i.e. ‘annual secretarial compliance report’ for due compliance under Reg. 24A.
Annual Secretarial Compliance Report (‘ASC Report’)
Giving of the ASC report will require the PCS to check the compliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunder. Further, SEBI also suggests the issuance of guidance note by ICSI for enabling the auditors to conduct their audit both in letter and in spirit.
ASC report is required to be submitted within 60 days from the end of the financial year. This implies that for checking the SEBI compliances, PCS will have a fixed time frame of 60 days unlike for issuing MR-3 where they took more than the aforesaid time considering the large scope of compliance reporting.
Further, the material unlisted subsidiary of the listed entities will not be required to annex the ASC report in their annual report considering the fact that SEBI laws are not applicable on these subsidiaries.
Overlapping Scope –MR-3 and ASC Report
Even though the intent of inserting Reg. 24A was to strengthen the group oversight and improve compliance at the group level for listed entities, however, the format suggests an overlap between MR-3 and ASC Report.
|Sr. No||Basis of comparison||Contents of MR-3||Contents of ASC Report|
|1.||Laws covered for reporting||
Looking at the above comparison, it is evident that the reporting under MR-3 is much broader in scope as compared to ASC report. Further, even though the ASC report is an overlap of the reporting under MR-3, the former is to be sent to SEBI.
Furthermore, the PCS certifying the ASC report shall undertake additional liability being the fiduciary of listed entity and shall also be liable for not reporting non-compliance of the SEBI laws. The limited time period allotted to the PCS for certifying the ASC report of the listed entity will also pose a challenge.