BACKGROUND –
The Auditor requires to report on various clauses covered under sub-section (3) of Section 143 of the Companies Act, 2013 (the Act) in Independent Auditor’s Report.
In 2021, the Ministry of Corporate Affairs (“MCA”) on 24th March, 2021 inserted new Rule 11(e), Rule 11(f) and Rule 11(g) and deleting Rule 11(d) to amend Companies (Audit and Auditors) Rules, 2014 read with clause (j) of sub-section (3) of Section 143 of the Act. The said amendment is made to enhance the disclosures in the reporting of Independent Auditor’s Report.
One of such amendment i.e. Rule 11(g) relating to “Audit Trail” is made applicable to audit report to be issued for FY 2022-23.
Rule 11(g) is reproduced as below:
“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.”
Whereas “Audit Trail means a step-by-step sequential record which provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.”
However, to give effect to this reporting and making companies to have Audit Trail in the accounting software used by them. Relevant amendment has also been made in Rule 3 (1) of the Companies (Accounts) Rules, 2014 i.e. ‘manner of books of accounts to be kept in electronic mode’ by MCA from 1st April, 2021.
However the applicability was deferred to financial year commencing on or after 1st April, 2022, vide MCA notification G.S.R. 248(E) dated April 1, 2021. It’s applicability is again deferred and finally it is made applicable from financial year commencing on or after 1st April 2023.
CURRENT SCENARIO –
Now let’s understand the two provisions simultaneously –
|
Maintaining of Audit Trail by company (Rule 3 (1) of the Companies (Accounts) Rules, 2014) |
Reporting on Audit Trail by Independent Auditor (Rule 11(g) of Companies (Audit and Auditors) Rules, 2014) |
| From 1st April 2023, accounting software used by the company which has a feature of recording audit trail of each and every transaction creating an edit log for every change along with date of such changes. | Every F.Y. commencing on or after 1st April 2022 i.e. audit report issued for F.Y. 2022-23, the auditor needs to report on accounting software used by company has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year and it has not been tampered. |
As it is evident from above that auditor needs to report on Audit Trail in its Audit Report issued for FY 2022-23 but the companies are required to maintain the same for F.Y. commencing from 1st April 2023. Both the provisions are contradictory.
REPORTING –
# Sample reporting by Auditor for FY 2022-23 in Independents Auditor’s Report on Audit Trail (Rule 11 (g)) –
“As proviso to rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the company w.e.f. April 1, 2023, reporting under this clause is not applicable.”
*the above reporting is applicable only in relation to Audit Report issued for FY 2022-23.
Author Bio
“As proviso to rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the company w.e.f. April 1, 2023, reporting under this clause is not applicable.”
the above reporting is applicable only in relation to Audit Report issued for FY 2022-23.
Please clarify above 2 opinions, one says not applicable, otherone says applicable.