ICAI releases Guidance Note on Reporting Audit Trail under Companies Act

The Institute of Chartered Accountants of India (ICAI) has released the Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

MCA introduced Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 which requires the auditor to report on the use of accounting software by a company, for maintaining its books of account which has an audit trail (edit log) recording facility and the same has been operated throughout the year for all the transactions recorded in the software.

In addition, the auditor must report that the audit trail function has not been tampered with and that the audit trail has been retained by the company in accordance with the statutory record retention requirements.

In March 2023, the Auditing and Assurance Standard Board (AASB) of the Institute of Chartered Accountants of India (ICAI) issued an “Implementation Guide on Reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014” to provide guidance to the members on the above said reporting requirement.

As a result, the AASB received a number of practical questions from members requesting additional clarification/guidance on the aforementioned reporting requirements.

Note that the Auditing and Assurance Standards Board has brought out this revised edition of the publication, “Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014”.

The revised version includes a section of Frequently Asked Questions (FAQs) to assist members with reporting under Rule 11(g). This revised Implementation Guide will enable the members to comply with the reporting requirement of Rule 11(g) more effectively

Introduction of Rule 11(g) of Companies (Audit and Auditors) Rules, 2014

Section 143(3) of the Companies Act of 2013 specifies the matters on which auditors must report in their auditor’s report. Clause (j) of Section 143(3) stipulates that the auditor’s report must include such other information as may be prescribed. Rule 11 of the Companies (Audit and Auditors) Rules, 2014 defines the other matters to be disclosed by the auditor.

The Ministry of Corporate Affairs (MCA) vide its notification No. GSR 206(E) dated March 24, 2021, has issued the “Companies (Audit and Auditors) Amendment Rules, 2021” read with sub-section 3 of Section 143 of the Companies Act, 2013 (hereinafter referred to as “the Act”) introducing new Rule 11(e), new Rule 11(f) and new Rule 11(g) and deleting Rule 11(d).

Rule 11(g) is reproduced below:

“Whether the company, in respect of financial years commencing on or after the 1st April 2022, has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention.”

The notification G.S.R. 206(E) dated March 24, 2021, made the requirement effective for the financial year beginning on or after April 1, 2021.

However, the applicability date was deferred to the financial year beginning on or after April 1, 2022, under MCA notification G.S.R. 248(E) issued April 1, 2021. It should be noted that a new requirement for companies has been imposed under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, requiring companies that use accounting software to maintain their books of account to use only accounting software with an audit trail feature.

This requirement for companies was initially made relevant for the financial year beginning on or after April 1, 2021. However, its applicability has been deferred two times and this requirement is finally applicable from April 1, 2023.

To Read More Download PDF Given Below: