MCA stipulates mandatory audit trail in accounting software used by companies

KR Srivats? New Delhi | Updated on March 25, 2021

New regime to come into effect from April 1

The Corporate Affairs Ministry (MCA) has 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 have now 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.

Sanjeev Singhal, Partner, SR Batliboi and Co LLP, said: “The change relating to mandatory audit trail in accounting software is a welcome change, and will help increase transparency. Auditors have been assessing IT General Controls when relying on IT systems, which includes programme change management.

‘More accountability’

“This reporting change will not only increase the IT testing of the accounting software, it will also enhance accountability among company personnel and enable audit of pervasive controls (for eg segregation of duty) using technology.”

Companies will have to immediately gear up their accounting software to enable audit trail / log of transactions, which cannot be disabled. While the audit reporting is generally for one year, the regulation refers to statutory requirements for record retention, which significantly enhances reporting responsibility, Singhal added.

Kapil Rana, Founder & Chairman, Hostbooks Ltd, said this will help the government and the honest taxpayer. “Transparency in transactions will create a surge in the tax revenue collection. This will boost the economy and significantly reduce the possibilities of the parallel black economy,” he said.

Harish Kumar, Partner, L&L Partners, said that these amendments are 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 of books and accounts. Further, additional disclosures in the board report – status of bankruptcy and valuation of assets – would enable the stakeholders to take an informed decision regarding the overall financial health and operations of the company, he said.

Meanwhile, the MCA has amended its Companies (Audit and Auditors) rules 2014, to cast responsibility on the management to make representation that circuitous means have not been adopted for diversion of funds of the company. Managements have to give such a confirmation, and auditors have to comment in their report on their satisfaction of such representation.

Published on March 25, 2021

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