In continuation of my previous article on Auditor’s Responsibility in respect of Audit Trail effective from April 1, 2023, in which I made an attempt to discuss the auditors part. With this article, I intend to discuss the responsibility casted upon the Management for effective maintenance and safe custody or preservation of records including Audit Trail.
1. WHO IS RESPONSIBLE FOR THE MAINTENANCE OF AUDIT TRAIL
It is the management, who is primarily responsible for ensuring selection of the appropriate accounting software for ensuring compliance with applicable laws and regulations including –
Giving due cognizance to the definition of “books of account” as envisaged under Section 2(13) of the Act and Rule 3 of the Account Rules which provides for the management responsibilities for maintenance of books of account and other relevant books and papers maintained in electronic mode.
*Audit Trail (Applicable from April 1, 2023)
Every company which uses an accounting software* for maintaining its books of account**, should use only such accounting software which has the following features:
The management assumes primary responsibility:
The amendments require every company (Be it Private, Public or OPC, Section 8 or Foreign Co) that uses an accounting software to use such software that has a feature of audit trail which cannot be disabled. The management has a responsibility for effective implementation of the requirements prescribed by account rules. Companies are required to maintain audit trail (edit log) for each change made in the books of account.
In order to demonstrate that the audit trail feature was functional, operated and was not disabled, a company would have to design and implement specific internal controls (predominantly IT controls) which in turn, would be evaluated by the auditors, as appropriate.
2. Location of Software:
As we know that accounting software may be hosted and maintained in India or outside India or may be on-premise or on cloud or subscribed to as Software as a Service (SaaS) software. It may be noted that any software used to maintain books of account anywhere will be covered within the ambit of this Rule.
3. Preservation of Audit Trails
When it comes to the preservation of records, it is the management, who is primarily responsible for the safe custody or preservation of book of accounts or Audit trails for a minimum period of 8 years, effective from April 1, 2023.
However, where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
4. Penalties for Non-Compliance
If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with fine which shall not be less than Rs. 50000 (fifty thousand rupees but which may extend to Rs. 500000 (five lakh rupees).
The views contained in this article are personal and the contents of this document are solely for informational purpose and it does not constitute professional advice that may be required before acting upon any matter. The Learner can be reached at email@example.com.
Special thanks to CA Ambuj Shkula for helping me writing this article. Ambuj can be reached at firstname.lastname@example.org.