Corporates in India — especially multinational outfits operating here — can no longer decline real time access of their account books to government authorities because they are maintained in electronic mode under a “cloud” infrastructure with servers located outside India.

Ministry of Corporate Affairs (MCA), through its latest tweak of accounting rules under the Indian company law, has mandated that companies would now have to provide real time access of their books of accounts on Indian operations to authorities in the form of “daily backups” of records even if the servers that hold the books of accounts are located outside India. The daily backups would have to be maintained in servers physically located in India. 

Related Stories
Fund of troubles
Increasing transparency and disclosing the current valuation can solve much of EPFO’s problems   

The new rules reflect a tightening of the regulatory regime around maintenance of books of accounts in electronic mode. It requires all corporate entities to ensure that the books of accounts and papers — when maintained in electronic mode — remain accessible to Indian authorities “at all times” so as to be usable by local law enforcement authorities for subsequent reference.

Identifying ‘Go to person’

Also, at the time of filing financial statements every year to the Registrar of Companies (RoC), corporates would now have to — in cases where the service provider is located outside India — provide the name and address of the person in control of the books of accounts and other books and papers in India. Put simply, corporates have to identify the “go to person” for the regulatory authorities to approach and who could lead them to the location of the servers in India where books of accounts or their backup could be accessed, official sources said.

Due to cost considerations, most companies have graduated to using technology and software tools to maintain their books of accounts in a “cloud”, which are hosted by several international cloud service providers. Such services are usually offered on a Software-as-a-service (SAAS) model, giving companies the advantage of reduced cost for running accounting functions and better control over the financial statements when operations are spread across multiple countries. 

While MCA is not prohibiting such arrangements, the new rules make it clear that the books of accounts should be accessible in India “at all times” and backups should be taken on a “daily basis”. These changes are intended for all corporates and not aimed at particular industry segments.

What experts say

Corporate observers see this “tightening” of rules as a response to recent instances when various regulatory authorities paying visits to corporates— especially certain MNCs and new-age start-ups — were denied access to books of accounts by local units of the international companies. This was made possible owing to the fact that the rules, even though they required them to have backups, were not specific about the periodicity. 

“The rules earlier said that the backup should be taken on a periodic basis. What is this periodic basis was not clearly defined in the rules. Now, the government has cleared the air and said backup of records should be taken on a daily basis,” a company law expert said.

Transparency & accountability

G Ramaswamy, former President of the Institute of Chartered Accountants of India (ICAI), told BusinessLine that the latest MCA move “would create transparency and accountability in the maintenance of books of accounts by companies”.

Aseem Chawla, Managing Partner, ASC Legal, said: “In order to fortify the regulations regarding maintenance of books of accounts; the amendments suggest that books are available for access at all times within India and therefore similarly the service provider (IT vendor) details are available if the vendor is stationed abroad. On the storage aspect, the backup is mandated now to be taken on a daily basis. All in all these are welcome steps of book keeping”.

 

social-fb COMMENT NOW