Mandatory Audit Trail under Companies Act, 2013 wef 01.04.2023

As per Rule 3(1) of the Companies (Accounts) Rules, 2014, every company which uses
accounting software for maintaining its books of account shall use only such accounting
software which has a feature of recording the audit trail of each and every transaction, creating
an edit log of each change made in the books of account along with the date when such changes
were made and ensuring that the audit trail cannot be disabled.
 
The following are the prime responsibility of the Management:
a)     use only such accounting software which has the following features:
·        Records an audit trail of each and every transaction,
·        Creating an edit log of each change made in the books of account along with
the date when such changes were made
b)     Ensuring that the audit trail is not disabled and there is no option to disable it.
c)     Effective Implementation throughout the year.
 
In simple words, the expectation is to maintain the edit log of every transition right from
recording to tracking the changes that may take place & that the Audit trail should be enabled
throughout the year. Further, it is also a mandatory requirement for companies.
Applicability on Whom
The Provisions of maintaining an Audit Trail is applicable on all Companies including Small
Company, Section 8 Company, One Person Company, Listed Company, Nidhi Company, Producer
Company etc. In other words, all the Companies registered under the Companies Act are
required to comply with the provision of the Audit Trail. It is not applicable to other entities
like LLP, Partnership Firms, HUF, Proprietorship etc.
Applicability from when
The Provisions of maintaining Audit Trail are applicable from 01.04.2023.
Time Period To Kept Record Of Audit Trail
As per the Companies Act 2013, the company is required to retain an audit trail for a minimum
period of eight years from the effective date of applicability i.e. 01.04.2023.
Auditor’s Responsibility (Reporting In Audit Report)
As per Rule 11(g) of the Company Act 2023, an auditor is mandatorily required to report /
comment in its Audit report :
·        whether the company is using accounting software that has a feature of recording
audit trail  
·        whether the audit trail feature is configurable (i.e., if it can be disabled or tampered
with).
·        whether the audit trail feature was enabled/operated throughout the year.
·        whether all transactions recorded in the software are covered in the audit trail
feature.
·        whether the audit trails are reserved as per statutory requirements for record
retention.
 

Penalties for Non-Compliance
In case of non-compliance with these provisions, the company or the director shall be
punishable with a fine which shall not be less than Rs. 50,000 & maximum Rs. 5,00,000.
 
Hence, it is recommended to upgrade your accounting software so that it