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MCA Update: Now companies can use only such software which has feature of showing audit trail

ADMIN by ADMIN
March 25, 2021
in Business & Other News
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MCA has vide notification Dt. 24.03.2021 amended rules for companies relating to maintenance of books of accounts which is as under:

“In the Companies (Accounts) Rules, 2014,-
(1) in rule 3, in sub-rule (1), the following proviso shall be inserted, namely:-
“Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”

Thus, according to above notification such rule shall be applicable to each and every company who maintain books of accounts on software.

According to above notification such companies will have to install a software from 01.04.2021 wherein audit trail of each and every transaction i.e. when the transaction was entered in books of accounts, when it was edited etc. is maintained and it should have feature so as to ensure that audit trail is not disabled.

Now let’s understand what is Audit Trail:

“An audit trail (also called audit log) is a security-relevant chronological record, set of records, and/or destination and source of records that provide documentary evidence of the sequence of activities that have affected at any time a specific operation, procedure, event, or device.”

 

Why is it so difficult for implementing such thing and why is it required?

1. Installing a software with a feature of audit trail and which cannot be disabled will be a costly software and all companies cannot afford it.

2. All the small companies don’t hire an accountant staff who make entries every day as it is not cost effective for many small companies to maintain day to day accounting.

3. Many companies have to make adjustment entries after the year end for provisions or any other adjustments which they make once a professional guides them and if such software is installed one won’t be able to make such entries. Hiring such a professional for whole year won’t be cost effective for all the companies.

4. Implementing a new software or making the employee’s compliant with new features immediately with 5 days and during year end is going to be a difficult task for many companies.

5. Although many existing softwares and many new cloud based softwares provide such feature but many people don’t use it as they have to regularly amend some entries or make adjustment entries.

 

How is this beneficial?

This will enable or force many companies to maintain daily and proper books of accounts.

This will also be beneficial for various software providers as their services would increase and this can be seen as an opportunity for professionals for providing internal audit services to such companies.

 

Who is not covered under the above provisions?

Only those companies who maintain manual books of accounts are not required to comply with the above provisions. Thus, as of now any company who is not ready to install such software should use manual system of books keeping.

 

Penalty: According to section 128 of the companies act, 2013 there could be a penalty of Rs. 50,000 to 5 lakh along with imprisonment If an officer of the company makes default in the provisions of maintaining accounts of the Company.

 

Suggestions: MCA should have applied such provision in a phase manner starting with applying such provision to listed companies first, then public companies and so on rather than implementing it on each company.

 

To download the notification from MCA CLICK HERE.

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Tags: company law updateMCA update
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