Update on MCA notification on audit trail!

The Ministry of Corporate Affairs (MCA) recently issued a notification regarding enforcement of Gazette Notification No. GSR 205 (E) dated 24^th March 2021 - Amendment to Rule 3(1) of Companies (Accounts) Rules 2014. Two notifications are of importance for our customers. These are –

• A proviso to Rule 3 (1) of the Companies (Accounts) Rules, 2014 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."
   
• Point (g) of 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

Essentially, what this means is-

1. Effective 1^st April 2021, every company that falls under the Companies Act's purview will need to maintain their books of accounts in software that has 'Audit trail' capability. The software should not have an option to disable this functionality. Here 'Audit trail' refers to the trail of all activities surrounding a particular transaction.
2. Auditors need to ensure that their clients have maintained their data in software (as per the above definition) for the entire financial year, and no manipulation is done.

We would like to share with you that we are in consultation with senior practitioners, CAs and other industry members to understand the impact and ease of application of these notifications from a practical standpoint. We will keep you informed of the outcome of such consultations in due course of time.

We are also working on ensuring that our product gets ready to help customers comply with this notification at the earliest. Again, we will keep you informed the moment we have the beta versions ready.

Meanwhile if your customers reach out to you for clarity, you are suggested to assure them about our ability to provide the required capability. As a matter of fact, our product does have the audit trail capability even today, we are seeking clarifications from the government to enable us to provide and guarantee a foolproof audit trail as per compliance requirement. 

If you have any questions or queries, please do not hesitate to contact us.

Regards,