Accounting software: MCA defers mandatory audit trail norm by 1 year

K.R.Srivats New Delhi | Updated on April 02, 2021

In a big breather for small and medium sized companies, the Corporate Affairs Ministry (MCA) has deferred by one year the implementation of its recent rule that required companies to use only accounting software having ‘audit trail’ features from financial year beginning April 1. 

Now, this implementation is being mandated for transactions put through for financial year beginning April 1, 2022.

The latest MCA deferral move, which has come in just a week after its initial announcement on March 24, has largely been prompted by concerns over paucity of time expressed by smaller and medium sized companies in making this transition, sources said. In all companies had only a week from March 24 to make the transition to equip themselves with software that had “audit trail” features and this was felt as a big challenge for them, they said.

In India, it is estimated that nearly 80-85 per cent of the 1.5 million companies are not using accounting software with ‘audit trail’ features embedded in them. However, most of the large companies are equipped with audit trail features in their existing ERP software.

It maybe recalled that MCA had on March 24 mandated every company that uses accounting software to maintain its books of accounts to only use software that has the feature to record audit trail of each and every transaction put through after April 1.

Also, companies had been mandated to create edit log of each change made in account books with the proper dates. As per the amendments, companies must ensure that the audit trail is not disabled.

While the intent of this MCA move was good as it is aimed at preventing tampering of books of accounts, and will further strengthen transparency in the recording of accounting entries to ensure true and fair view, the short time span given for its implementation was a sore point, especially for small and mid sized companies. Now that has been taken care by the deferment by one year, sources said.

Commenting on the development, Govind Ahuja, Partner, S R Batliboi and Associates LLP said: “This is a pragmatic decision as it will provide the much needed timeframe for companies to work with their technology teams and software vendors to develop, test and implement robust solutions for maintaining audit trail. This relief will particularly help small companies.”

Gaurav Shanker, Managing Partner, Business Law Chamber, said: ”While the MCA’s resolve to mandate the feature of recording audit trail of each transaction in accounting software used by companies will go a long way in ensuring proper book keeping and increasing governance, the deferment of this requirement will give a breather specially to MSMEs which will still take time to transition into the new book keeping system.”

Published on April 02, 2021

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