Audit trail intends to serve the purpose of tracing back the original transaction or entry. It brings in an element of transparency in records and has the potential of curbing the malpractices of window dressing. Use of such a feature in accounting software ensures that all the alterations come to light and in case the records are manipulated, the same cannot be camouflaged.
Proviso to sub-rule (1) of Rule 3 was introduced through the Companies (Accounts) Amendment Rule, 2021 which read as-
“Provided that for the financial year commencing on or after the first day of April, 2021, every company which uses accounting software for maintaining its books of accounts, 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.”
The above proviso has got certain elements worth noting. A careful read of the above highlights terms like every company, feature of recording audit trail, each and every transaction, edit log, and disabled.
Analysis of the proviso helps in deriving the following conclusions–
- Accounting software is mandated to have the feature of Audit trail.
- The mandate applies to each and every Company regardless of its size or industry.
- There should not be any feature of disabling the audit trail.
- Audit trail should be maintained for each and every transaction in relation to which any alterations has been performed.
However, the applicability of the above proviso has been deferred till 1st April, 2022 by the Companies (Accounts) Second Amendment Rules, 2021.
To ensure that the Rule is adhered to and there is no non-compliance, corresponding amendment was brought in Rule 11 of the Companies (Audit and Auditors) Rules, 2014 by Notification no. G.S.R. 206(E) issued by MCA as on 24th March, 2021. The amendment called for reporting by the Auditor in relation to whether the company had used such accounting software for maintaining its books of account 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 the statutory requirements for record retention. However, the aforementioned reporting requirement was also deferred by the Companies (Accounts) Second Amendment Rules, 2021. Consequent to the amendment, the Rule called for reporting by the Auditor in the said matter for financial year commencing on/ after 1st April, 2022.
Thus, w.e.f 1st April, 2022 all the companies are supposed to meet the requirement of having such an accounting software that has the feature of audit trail. In addition, auditors will be required to comment on the same.
