MCA mandates Companies to use Software with Audit Trail of each Transaction

The Ministry of Corporate Affairs (MCA) has issued a notification (Companies (Accounts) Amendment Rules, 2021), that every company which uses accounting software for maintaining its books of account shall use only the accounting software where there is a feature of recording audit trail of each and every transaction, and further creating an edit log of each change made to books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

The Government notified the Companies (Accounts) Amendment Rules, 2021 which seeks to amend Companies (Accounts) Rules, 2014, below.

In rule 3, in sub-rule (1), the proviso shall be inserted which says, “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 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.” In rule 8, in sub-rule (5), after clause (x), the two clauses shall be inserted.

The notification shall come into force with effect from April 01, 2021.

Author Interpretation –

In order to curb the chances of fraudulent transactions or manipulation of in the books of accounts of the company and to increase the chances of the fraudulent transactions being identified by the Auditors of the Company this amendment will be a milestone.

Auditors now will be in a better position to comment on the authenticiy of the books of accounts and will have more chances to reduce risk by way of checking the trails and logs available in the system.

This requires further intepretation on the specific softwares and the process to be opted to follow the notification.

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