Govt makes U-turn on audit trail in accounting

Since the majority of the Companies particularly in the SME and MSME sector use audit software which did not support the feature of audit trail or the feature that restricted disabling the audit trail

Mumbai: After withdrawing its plan to reduce interest rate on small deposits after having issued a notification, the government has once again reversed its own decision to implement the mandatory use of Audit trail in Accounting software used by the Companies and has differed it to be implemented from April 1, 2022.

"In the Companies (Accounts) Second Amendment Rules, 2014, in proviso to sub-rule (1) of rule 3, for the figures, letters and words '1st day of April, 2021', the figures, letters and words '1st April, 2022' shall be substituted," a govt notification, issued on April 01 said.

The principal rules were published in the Gazette of India vide notification dated March 24.

The government had first announced that it would cut interest rate on all kinds of small savings deposits schemes since April 1. However, it had to withdraw the notification after a few hours of having issued the same.

On March 24, the Ministry of Corporate Affairs (MCA) issued a notification instructing companies to use accounting software that can record an audit trail of every transaction that they carry out. This rule comes under the Companies Amendment Rules, 2021, and was to be enforced since April 1, 2021.

The said rule imposed the mandatory requirement that the accounting software that companies use to maintain their books must include the ability to record an audit trail of every transaction that takes place, create and edit log of each change happening in the books, along with the date and user details and ensure that the audit trail can't be disabled.

However, since the majority of the Companies particularly in the SME and MSME sector use audit software, which did not support the feature of audit trail or the feature that restricted disabling the audit trail. This had left many companies in a difficult situation as they were unprepared for such a change within a short span of time of one week that too could have time and cost implications especially before the start of new financial year. Confirming the development, New Delhi-based CA, Abhishek Aneja said, "In India, a significant number of companies use particular accounting software which does not comply with the new rule of audit trail."

With the initial amendment, suitable time was not being allowed to the Companies as they needed reasonable time to check the suitability, selection of new software and migration of their data to the software having the features of Audit trail which cannot be disabled. Doing it at such a short notice could have posed a lot of problems for such companies, he said.

It is good that sufficient time has now been given to Companies to adapt to the new changes, he added.