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What is compliance audit under company law?

08-May-2026
Corporate

Answer By law4u team

A compliance audit under company law is a systematic examination of a company’s records, operations, and procedures to check whether it is following all applicable legal and regulatory requirements. Under the Companies Act, 2013, compliance audit mainly focuses on verifying whether the company is properly adhering to provisions such as filings with regulatory authorities, maintenance of statutory registers, board procedures, shareholder requirements, and other legal obligations. In simple terms, it is an audit that checks “whether the company is obeying the law”, rather than just checking financial accuracy. This audit is often conducted through a Secretarial Audit, which is mandatory for certain classes of companies (such as listed companies and large public companies) and is carried out by a Practising Company Secretary. The auditor examines whether the company has complied with laws like company law, securities regulations, and other applicable corporate laws. The main purpose of a compliance audit is to ensure legal discipline, transparency, and good corporate governance. It helps detect non-compliance early, reduces the risk of penalties or legal action, and improves investor confidence in the company’s functioning. If any non-compliance is found, it is reported in the audit report, and the company is expected to take corrective action.

Answer By Ayantika Mondal

Dear Client, A compliance audit, also known as a secretarial audit, acts as an independent process used specifically to check whether a company abides by the relevant company laws, rules, and regulations. According to Section 204 of the Companies Act, 2013, and relevant applicable rules, compliance audits are required for almost all listed companies and particular types of big unlisted public companies. The audit is generally carried out by a professional practising company secretary to reduce the regulatory risks, making sure that no violations happen accidentally, and ensuring effective corporate governance. The results of that audit lead to the formation of the Secretarial Audit Report (Form MR-3), which is to be sent together with the Board’s report. It is advisable to act in compliance with certain requirements whenever the company falls under certain thresholds and requirements, as this overview cannot be considered the ultimate legal conclusion. I hope this answer helps. If you have any further query kindly do not hesitate to contact us. Thank you

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