The government; by amending The Companies (Audit and Auditors) Rules, 2014, has inserted the new clause “g” to be implemented from 1st April 2022 (originally, to be implemented from 1st April 2021), and the auditor shall comment on the same in their report for the year 2022-23.

Clause “g” provides; Whether the company, in respect of financial years commencing on or after the 1st April 2022, has 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.

Applicability of Accounting Software with Audit Trail

The provision will be applicable to all kinds of companies. Provision mandate the implementation of the accounting software in the company with the feature of creating an audit trail, i.e. such software should be capable of maintaining an edit log. For example, if an entry is being altered, then such software should be capable of recording the detail of both altered entries, as well as old entries along with the date of such alteration etc.

Further, it is the responsibility of the auditor to comment on; whether all transaction entered by the company is being recorded in such software or not, and further whether the audit trail feature has been tampered with or not, and the company is preserving such audit trail or not.

The government has implemented this provision to increase the level of transparency and accountability in the overall system. It is to be noted that where the audit report is generally for a one-year, however, audit trails needs to be preserved for at least eight years.

In my personal opinion, I believe that such software will greatly improve the transparency, accountability and ultimately the level of corporate governance in the Indian Inc. However, MSME companies might find themselves in the spot due to the relatively higher cost of such software, and more so in the post-pandemic economy.

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February 2024