Draft Disclaimer of Opinions on Audit Trail & on Disallowances u/s 43B(h)

Notification of CBDT regarding amendments in Form 3CD alongside the desired illustrative formats of various reports. As informed by few of the members that NOTES ON DISCLAIMER OF OPINION ON AUDIT TRAIL & DISALLOWANCE U/S 43B(h) were missing. Keeping in view the above in mind I in consultation with the experts of the subject have drafted the desired disclaimers which can be used by you all while finalising Statutory Audit Reports/ Tax Audit Reports for the financial year ending on 31st March’ 2024. Draft Disclaimers of Opinion are as under:

Disclaimer of Opinion on Audit Trail

“The company has not used accounting software with an audit trail (edit log) feature throughout the year as required under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014. However, this is due to reasonable causes. As a small company having limited number of transactions during the year, the management faced constraints on selecting the appropriate software vendor in delivering and installing the required updates, which prevented the immediate implementation of audit trail-compliant software. Additionally, the company’s current accounting software is fully capable of ensuring that the books of account and other relevant records are retained completely in their original format or in a format that accurately presents the information. The software ensures that the data remains complete and unaltered, thereby maintaining the integrity and reliability of the records.

The management is aware of the importance of using audit trail-compliant software and is actively exploring options to upgrade the current system to include an audit trail feature by [specific date], as part of its commitment to full compliance with statutory requirements.”

Disclaimer of Opinion on Disallowance Under Section 43B(h) – Example 1:

“As part of our audit of the financial statements of [Company Name] for the year ended [Date], we were required to verify the compliance with Section 43B(h) of the Income Tax Act, 1961, which pertains to the disallowance of any sum payable to micro or small enterprises beyond the time limit specified under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. However, due to the limitation of scope, we could not obtain sufficient and appropriate audit evidence regarding the payment status to these enterprises within the specified time frame. Consequently, we are unable to determine the adjustments, if any, that might have been necessary in respect of amounts recognized and disclosed in the financial statements. Therefore, we do not express an opinion on the potential disallowance under Section 43B(h) of the Income Tax Act, 1961.”

Disclaimer of Opinion Due to Inadequate Identification of Micro and Small Enterprises – Example 2:

“As part of our tax audit procedures for [Company Name] for the year ended [Date], we were required to verify compliance with Section 43B(h) of the Income Tax Act, 1961. This section mandates that any sum payable to micro or small enterprises must be paid within the time limits specified under the Micro, Small and Medium Enterprises Development Act, 2006, failing which such amounts are disallowed as a deduction.

During our audit, we observed that the company does not maintain adequate records or systems to correctly identify all its suppliers who qualify as micro or small enterprises as defined under the Act. Without comprehensive identification and classification of these suppliers, we were unable to verify whether the payments to such enterprises were made within the prescribed time frame and, consequently, whether any disallowances under Section 43B(h) are applicable.

Due to this limitation, we are unable to determine if the company has fully complied with the provisions of Section 43B(h) of the Income Tax Act, 1961. As a result, we disclaim our opinion on this matter for the purposes of the tax audit report. This disclaimer pertains exclusively to compliance with Section 43B(h) and does not affect our opinion on other matters covered in the tax audit report.”