The Ministry of Corporate Affairs (MCA) had issued a notifications on 24th March, 2021 vide which following amendments were made:
- A provision was inserted to Rule 3 (1) of the Companies (Accounts) Rules, 2014 vide Companies (Accounts) Amendment Rules, 2021 which reads, “Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its books of account, shall only use a software that has a feature for recording audit trail of each and every transaction, creating an edit log of each change made in the books of accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”
- Further inter-alia Point (g) was inserted in para 11 of the Companies (Audit and Auditors) Rules vide Companies (Audit and Auditors) Amendment Rules, 2021, which reads as – whether the company has used such accounting software for maintaining its books of account which has feature of recording Audit Trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the Audit Trail feature has not been tampered with and the audit trail feature has been preserved by the company as per the statutory requirements for record retention
Thus the use of accounting software with audit trail was not only mandated for Companies to follow from FY 2021-22 , but the Auditors were also entrusted to report its compliance in their report.
The intent of the above amendment is to bring in more transparency and improve compliance. Further it seems that this will detect manipulation of electronic accounting records by management of corporates to play a fraud on the interests of stakeholders and in the process, defeat the object and purpose of law.
It may be noted that an audit trail is defined as a step-by-step sequential record that provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.
Use of accounting software with audit trail deferred to FY 2022-23
The MCA vide Notification dated 1st April, 2021 has issued ‘Companies (Accounts) Second Amendment Rules, 2021’ to defer the implementation of mandatory use of accounting software having Audit Trail as provided under proviso to Rule 3 of the Companies (Accounts) Rules, 2014 till March 31, 2022.
Rule 3(1) of the Companies (Accounts) Rules, 2014 now reads as under:
“3. Manner of books of account to be kept in electronic mode.-
(1) The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference.
Provided that for the financial year commencing on or after the 1st day of April, 2022, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”
However it may be noted that the consequential amendment in notification amending Companies (Audit and Auditors) Rules has not yet been issued and is expected to be shortly.
READ NOTIFICATION: https://www.mca.gov.in/Ministry/pdf/AccountsAmendmentRules_01042021.pdf
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