This brief article discusses the mandatory requirement for all businesses (large and small) to record transactions in software that includes an audit trail.
Overview
The Ministry of Company Affairs (MCA), in a notification dated March 24, 2021, and a subsequent notification dated April 1, 2022, made it mandatory for all companies to have an audit trail feature in their accounting software by April 1, 2023.
Thus, it is necessary to inform each company that beginning on April 1, 2023, the accounting software they use must abide by the 2014 Companies (Accounts) Rules.
To facilitate audit trail-related matters, the Companies (Accounts) Rules, 2014 and the Companies (Audit and Auditors) Rules, 2014 have been amended. The actual amendment and its implications are briefly discussed below. The Companies (Accounts) Rules, 2014 ("Accounts rules") have been amended to allow for the foregoing. This rule (Accounts rules) requires that, beginning on April 1, 2023, any company that uses accounting software to maintain books of accounts use accounting software that has
a) The ability to record an audit trail of each and every transaction,
b) The creation of an edit log of each change made in books of accounts, along with
c) The date when such change was made, and
d) The inability to disable the audit trail.
It also provides the following:
a) The books of accounts must be accessible in India at all times
b) On a daily basis, the back-up of the company's books of account and other books and papers maintained in electronic mode, including at a location outside India, shall be kept in servers physically located in India.
Companies (Audit and Auditors) Rules, 2014 (Audit rules) were amended on March 24, 2021, to include an additional reporting point in Auditors reports, as follows (this point has been divided into various components for clear understanding of the requirement:
“Whether the company has used such accounting software for maintaining its books of accounts which has a 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 has been preserved by the company as per statutory record for record retention.
This additional clause was initially made applicable from 1st April 2021, then postponed to 1st April 2022 and now is applicable from 1st April 2023.
Types of Entities falling under the purview of audit trail
1. All Public and Private Limited Companies
2. One-Person Companies (OPCs)
3. Companies owned by the Government of India.
4. State Government Companies.
5. Non-for-profit Companies/ Organization (Governed under Companies Act)
6. Nidhi Companies
Types of Entities not falling under the purview of audit trail
1. Individuals
2. Proprietorship concerns
3. Partnership firms
4. Limited Liability Partnership (LLP)
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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