Important announcement to Limited/Private Limited Companies

Important announcement to Limited/Private Limited Companies

Government has notified that if your company is using a software for accounting purpose, it should have an “Audit Trail”. This stipulation originally was proposed to implement from 1^st April 2021, but subsequently postponed.

Now, this will be applicable from 1^st April 2022.

The amendment says:

·       The software used should have an Audit Trail (Edit Log) facility

·       The same should be operated throughout the year for all transactions

·       The audit trail feature cannot be tampered with or disabled

·       It should be preserved for 8 years

Audit trail will record  edits made to the book of accounts along with the date when such an edit was made.

Though the feature is implemented as per the Companies Act, this will help GST, Income Tax and other departments also, to check whether any malpractices, falsification, editing, deletion etc., and if found out, it will lead to very serious repercussions.

For example, if you pay an amount which is more than Rs. 10,000/- for an expense in cash, and you subsequently edit the entry to split the payment into lower amounts on multiple dates to escape disallowance of such expenditure from income tax purpose, department can easily track this. This can lead not only to the disallowance of such expenditure but also to rejection of entire books of accounts and all the damages and penal provisions will follow.

Once, any department finds out an editing or deletion, then you will have to satisfactorily explain the reason and justification for such edit/deletion. Otherwise, the damage will be huge.

This new stipulation is brought in as amendment in the Companies (Accounts) Rules 2014 and Companies (Audit and Auditors) Rules 2014.

Hence, the auditor of your company is required to report whether the software is having audit trail facility, whether it is operated throughout the year for all transactions, whether they are tampered with or disabled and whether it is retained as required by law.

The only way forward is to have accountants having sufficient knowledge and efficiency in your accounts department and to keep the accounts plain, simple and straightforward. Any kind of malpractices can be suicidal.

So, you may please check with your software people and ensure that the software you use is having the audit trail feature as stipulated by the Ministry of Corporate Affairs.

The only way to escape from this stipulation is to have your accounts in old manual mode, which is totally impractical and inefficient in the current scenario.