Disclosure about audit trail by Auditor in their Audit Report starting from 01.04.2022 instead of earlier 01.04.2021.

In exercise of the powers conferred by sections 139, 143, 147 and 148 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013, the Ministry of Corporate Affairs (MCA) on 1st April, 2021 notified Companies (Audit and Auditors) Second Amendment Rules, 2021 which seeks to amend the Companies (Audit and Auditors) Rules, 2014. In the Companies (Audit and Auditors) Rules, 2014, in rule 11, in clause (g), for the words “Whether the company”, the words, figures and letters “Whether the company, in respect of financial years commencing on or after the 1st April, 2022,” shall be substituted.

Earlier, in exercise of the powers conferred by sections 139, 143, 147 and 148 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013, MCA on 24th March, 2021 has notified the Companies (Audit and Auditors) Amendment Rules, 2021 so as to broaden the scope of reporting by Auditors in the Audit report w.e.f. 1st April, 2021.

In the Companies (Audit and Auditors) Rules, 2014, in rule 11, after clause (d), the three clauses were inserted.

New clause (e)-

(i) whether the management has represented that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (Intermediaries), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(ii) Whether the management has represented, that, to the best of it’s knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(iii) Based on such audit procedures that the auditor has considered reasonable and appropriate in the circumstances, nothing has come to their notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.

New clause (f)- whether the dividend declared or paid during the year by the company is in compliance with section 123 of the Companies Act, 2013.

New clause (g)- whether the company 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.”

MCA has mandated that Auditor has to report in his Audit report starting from 01.04.2021 that if the Company is maintaining its books of account in an Accounting Software which has a feature of recording audit trail (edit log) facility or not. This report is now made applicable from 01.04.2022 instead of earlier 01.04.2021.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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