Challenges in Implementation and Application of Accounting Software with Audit Trail

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  • 2 Min Read
  • By Taxmann
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  • Last Updated on 10 May, 2023

Accounting Software Audit Trail

[2023] 150 167 (Article)


Section 143(3) of the Companies Act, 2013 (“Act”) provides various matters on which the Statutory Auditors (“Auditors”) are required to report in their Auditor’s Report. Section 143(3)(j) of the Act provides that the report of Auditors shall also state such other matters as may be prescribed. Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (“CARO”) specifies such other matters that are to be reported by the auditor.

The Ministry of Corporate Affairs (“MCA”) vide its notification No. GSR 206(E) dated March 24, 2021 issued the ‘Companies (Audit and Auditors) Amendment Rules, 2021’ (“the Audit Rules”) read with Section 143(3) of the Act introducing new Rule 11(e), new Rule 11(f) and new Rule 11(g) and deleting Rule 11(d).

Rule 11(g) reads as:

“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”

The requirement was initially made applicable for the financial year commencing on or after the 1st day of April 2021 vide notification G.S.R. 206(E) dated March 24, 2021. However, the applicability was deferred to the financial year commencing on or after April 1, 2022, vide MCA notification G.S.R. 248(E) dated April 1, 2021. It may be noted that a new requirement for companies has been prescribed under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 requiring companies, which use accounting software for maintaining their books of account, to use only such accounting software which has audit trail feature. It was initially made applicable to the companies for the financial year commencing on or after April 1, 2021. However, its applicability was deferred and has been made applicable from April 1, 2023.

What is an Audit Trail?

Let us understand the concept of ‘audit trail’. An audit trail is a record of all the events or activities that have occurred within a computer system or application. It is a chronological sequence of events that provides a way to trace the history of a particular transaction, operation or event.

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