Requirement of accounting software having audit trail w.e.f. 1 April 2023 - MMJC

Requirement of accounting software having audit trail w.e.f. 1 April 2023

1. Introduction.

The Companies Act, 2013 (the Act) permits companies to maintain their books of accounts in electronic mode also, instead of keeping in physical form. Further, Rule 3 of the Companies (Accounts) Rules, 2014 (the Rules) prescribes the detailed manner in which books of accounts can be kept in electronic mode.

2. Requirement.

A new requirement was inserted that “every Company which uses accounting software for maintaining its books of accounts 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 accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled” as per proviso to Rule 3 of the Companies (Accounts) Rules, 2014.

3. Earlier Extensions.

The aforesaid requirement was first inserted via the Companies (Accounts) Amendment Rules, 2021 [MCA Notification dated: 24^th March, 2021] and was set to take effect from 1^st April, 2021.

Considering the practical difficulty of stakeholders to implement such requirement relating to accounting software, MCA via another Notification dated: 1^st April, 2021 extended such compliance requirement w.e.f 1^st April, 2022.

There were further set of developments which stakeholders were facing in relation to cost impact for maintaining such software which made MCA to give further levy of one year. MCA vide another notification dated 31^st March, 2022 namely the Companies (Accounts) Second Amendment Rules, 2022 notified that such proviso to Rule 3 (1) shall take effect from 1^st April, 2023.

4. Conclusion.

As of now there are no new notifications which are notified by the Ministry w.r.t further extensions for companies using accounting software. Hence it can be concluded that all such companies who are maintaining books of accounts in electronic mode must use such accounting software which comply with the requirement set out by the proviso to sub rule (1) of Rule 3 of Companies (Accounts) Rules, 2014, i.e., has the following three features with effect from 1^st April, 2023:-

• Recording audit trail of each and every transaction
• Creating an edit log of each change made in books of accounts, along with date when such changes were made, and
• Ensuring that the audit trail cannot be disabled.

Shravan Pai, Intern – shravanpai@mmjc.in