Conflicts and overlap of functions:
Section 227 clearly specifies the areas of duties, functions and responsibilities of financial auditor (FA). Section 211 read with Schedule VI of the Act mandates that the balance sheet of the company shall give a true and true fair view of the state of affairs of the company and shall be in the form set out in Part I of Schedule VI. The statutory FA appointed by the shareholders makes his observations on this point.

Paradoxically, the practising company secretary (PCS), pursuant to the provisions of Section 383A, is expected to certify "whether the company has complied with all (emphasis supplied) the provisions of this Act" which, legally speaking, cannot exclude the above areas specifically reserved to be discharged by the FA.

Vice Versa Sub-section (2) of Section 227 mandates that the auditor shall make a report to the members of the company on the account examined by him, and the report shall state, whether in his opinion, the said account give a true and fair view (emphasis supplied) of the performance as well as state of affairs of the company.

Under this provision the FA will be entitled to obtain a draft copy of the certificate to be issued by the PCS so that he can report suitably to the member, particularly because it does not preclude a PCS from making any observations on the accounts or matters relating thereto as well as on those items which are required to be disclosed pursuant to the provisions of the Manufacturing and other Companies (Auditor's Report) Order, 1985.

Some of the reporting requirements under MAOCARO overlap with those of that of the FA. These requirements include the ones on accepting/ giving loans to parties listed in the register maintained under section 301 or companies under the same management, compliance with RBI guidelines in case of acceptance of deposits by the company etc.

It is therefore imperative that the two professionals work in co-ordination. Better still if this Order is so modified as to eliminate areas which are within the purview of the PCS in so far as the companies which are hit by the provisions of compulsory secretarial audit.

Limitations:
As is evident from the wording of the provision for mandatory secretarial audit for a segment of private and unlisted public companies, the scope of the PCS is restricted to examine and comment on the "compliance of the provisions of this Act".

In other words if during the course of the audit the company secretary comes across or notices violation of the other regulation provisions, such as Sebi regulations, RBI directions as applicable to the companies apart from Income Tax Act, Customs, Fema etc., he has no right to make any observations.

There are certain Sebi regulations such as guidelines for issue of bonus shares, issue of debentures etc, to name a few, which are applicable to private and unlisted public limited companies and it is a pity that these areas left out of the purview of the PCS. Similarly there are certain directions of RBI which are to be complied with by deposit accepting non-banking financial companies.

Ironically, those companies who are not required to appoint a whole time company secretary and who, as a measure of good governance, choose to appoint a company secretary will also come under the purview for the simple reason that compulsory audit is applicable to the specified companies "who are not required to employ a whole-time secretary".

This is rather unfair and contrary to the views expressed by the expert working group appointed to re-examine the Companies Bill 1997 which expressed "since a whole-time company secretary falls under the category of officer who is in default; it is presumed that he has every reason to discharge his obligation as per the Act and that therefore companies with a whole-time secretary would not require to submit a separate compliance certificate to the RoC".

Moreover it is against professional etiquette for one professional to audit the work of another fellow professional. Anyway this is what the Act mandates and it would therefore be obligatory for companies with a paid-up capital of rupees ten lakh or more to employ a company secretary in whole-time practice to carry out secretarial audit even though such a company may have employed a whole-time qualified company secretary.