JK Ltd. engaged AK, a PCS, to certify its Annual Return (Form MGT-8) for FY 2023-24. During his review, AK identified material discrepancies, including non-disclosure of related party transactions, non-compliance with sh

Certification with Reservation/Qualification/Observations /Adverse Remarks A PCS may certify the Annual Return subject to certain reservations/qualifications/ observations/ adverse remarks by way of an annexure to his certificate. However, this course of action can only be resorted to in case where material facts are not stated correctly and completely in the Annual Return or where the company has not complied with the applicable provisions of the Companies Act. While signing of the Annual Return of a company by a Company Secretary or a Company Secretary in practice, the certifying professional shall ensure compliance with the guidance note on the Certification of the Annual Return as published by the ICSI and make appropriate professional judgments, wherever necessary. It is the duty of the certifying professional to take the copy of the relevant documents and record such facts, based on which he has certified the Returns. While certifying of the Annual Return in Form No. MGT-8, the certifying professional shall give the observation, limitation and disclaimer as may be required and appropriate for the certification. Guiding Principles There are no specific modalities or stringent test practices applicable for certification of Annual Return. However, the following guiding principles can be adopted while deciding about the extent of checking that is required. (i) Internal Controls: The PCS shall perform a detailed review of the internal controls, checks and balances built into the systems and procedures of the Company. If appropriate internal controls exist, and operate effectively, the need for detailed checking is reduced to a large extent. For instance, the procedure for registration of share transfers could be so designed that the mistakes and errors committed at one stage are automatically detected and corrected by another before the whole process is complete. The system could also provide for inherent checks, particularly in cases where the process is automated/computerized. (ii) Materiality: Similar to any audits, the principle of materiality is another important and relevant concept. The sample chosen for detailed checking should be representative of the whole, or the 'population', in statistical parlance. For example, in share transfers, instances of transfer of large blocks of shares could be chosen for detailed scrutiny. Or, the 'busy' period for transfer of shares in the year could be identified and selected for sample checking. (iii) Risk Assessment: The PCS shall have an overall understanding of the Company, the industry in which the it operates, corporate governance practices, etc., and perform risk assessment to identify the 'high risk' areas. These 'High risk' areas shall be subjected to more extensive verifications. For instance, in the case of shares on which there are restrictions on transfer statutory or otherwise, a more extensive examination is warranted. In conclusion, it may be noted that the ultimate responsibility of the document certified will rest with the professional. While the extent of checking is a matter of professional judgment, he should safeguard himself against any possible charge of negligence in respect of inaccurate or incomplete statements certified by him, by adequately documenting the procedures performed and conclusions drawn.