- On 31st March 2022 MCA has differed implementation of by another one year. Guidelines will be applicable from 2023
- Implementation was technically challenging
- Companies are expected to preserve audit trail in line with the Books of Accounts
In order to build transparency and integrity in the financial reporting process, Ministry of Corporate Affairs had issued notification dated 24th March 2021 – Amendment to Rule 3 (1) of Companies (Accounts) Rules 2014 pertaining to Audit Trail Rule.
Audit Trail Rules were originally scheduled to be implemented from April 1, 2021. Notification was deferred for one year and was further rescheduled to be implemented from the start of the financial year 2022-23. On 31st March 2022 MCA has further differed implementation of amendments by another one year. The implementation was put on hold a year back owing to the objections and concerns raised from the business community in India.
According to the proposed guidelines, every company that utilises accounting software to maintain its books of accounts must use only accounting software that has a feature of capturing audit trails of each and every transaction. Rules were recommended to apply to every firm covered by The Companies Act, 2013 that uses accounting software to keep track of its finances.
According to the guidelines, such software should include audit trail recording capabilities and be applicable to each and every (all) transaction (s) Accounting software should establish an edit record of each change made in the books of account, along with the date when the change was made, with the ability to disable the audit trail. The audit trail feature should not be tampered with, and the edit log has been operational all year. While recording transactions, businesses must keep track of each change made to the books of accounts, including the date the change was made, and ensure that the audit trail is not disabled.
Every firm uses different accounting software varying from Tally to SAP. Development of software can be in-house or can be hosted by third party hosted. Sometime it can be worldwide hosted by the parent organisation. Compliance with these requirements may be challenging for the People, Process perspective. Organisation may also find Technologically challenging in terms of usage of software, availability data storage requirement, requirement of higher Network Bandwidth for accommodating data traffic.
Since every modification, deletion, archival made in the programme generates and logs an entry in the Audit Trail tables, the Audit Trail will generate huge amount of data. Every accounting software will need to give administrative functions to enable appropriate maintenance and operational upkeep of these systems in order to administer the application and underlying databases successfully.
Company is expected to preserve the audit trail. Section 128(5) of the Companies Act, 2013 requires to retain books of account for a minimum period of eight years. However, definition of books of account does not include audit trail.
Organizations may need to revisit their IT strategies for hosting and maintaining Accounting Software in order to enable a comprehensive and structured implementation of these requirements. Companies will also require time to renegotiate complex contracts, allow and test modifications to hardware and software, assure the retrievability of such logs, and conduct ongoing analysis of such logs. While the delay in implementation is a positive start, institutional actions may be required to prepare the entire ecosystem and work toward coordinated efforts for audit trail adoption.
During FY 2021-22, 1,67,083 companies got incorporated as against 1,55,389 companies in FY 2020-21. MCA is sending business friendly signals to Industry by relaxing rules and listening to Industry Ask. Deferment of Audit Trail guidelines will promote Congenial Business Environment within the Country
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