From FY22, use software that records audit trail of transactions: Centre to companies

Audit 2

The government has directed companies to use accounting software that records the audit trail of transactions and the rule will come into effect from the new financial year 2021-22, which begins April 1.

"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," the Union Ministry of Corporate Affairs said in a notification.

The ministry also said companies must provide details of the application made or any proceeding under the Insolvency and Bankruptcy Code (IBC), as well as the details of the difference between the amount of the valuation done at the time of one-time settlement and the valuation done while taking a loan from financial institutions.

The new rules are part of the amendments made to the Companies (Accounts) Rules.

According to the notification, "in rule 8, in sub-rule (5), after clause (x), the following clauses shall be inserted namely:-"(xi) the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year along with their status as at the end of the financial year. (xii) the details of the difference between the amount of the valuation done at the time of onetime settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof."

"The impact of making audit trail mandatory is enormous and ensures transparency in the system. Since not many software companies provide the functionality of keeping an audit trail currently, they will have to transition to new software which will be a challenge. The software providers also need to update and build audit trail functionality in their product offerings to comply with the new changes and sustain their businesses. This move will also enable tax departments to have better control over tax evasion and maintain books of accounts in a true and correct manner, which eventually will result in a surge in the tax revenue collection and give a boost to the economy," said Kapil Rana, Founder & Chairman, HostBooks.