India: Accounting software having audit trail


published on 17 April 2023 | reading time approx. 2 minutes

The Ministry of Corporate Affairs, Government of India, via notification dated 24 March 2021, has introduced a new concept of Audit Trail, which becomes effective from 1 April 2023. 

What is Audit Trail?

The term Audit Trial means a system that traces and creates chronological records of every book entry and keep a log of every change made in the books of accounts by capturing the date and details of such change made.

Is this new requirement applicable on you?

As per said notification, every company, which uses accounting software for maintaining books of accounts, are mandatorily required to use an accounting software that
  • has a feature of recording audit trail of each and every transaction,
  • creates an edit log of each change made in the books of accounts along with the date when such changes were made and
  • ensures that Audit Trail feature cannot be disabled.

It is the management, who is primarily responsible for ensuring selection of the appropriate accounting software for ensuring compliance with applicable laws and regulations. 

The accounting software may be hosted and maintained in India or outside India or may be on premise or on cloud or subscribed to as Software as a Service (SaaS) software.

Preservation of Audit Trails

The company would need to retain audit trail for a minimum period of eight years i.e. effective from the date of applicability of this notification i.e. currently 1 April 2023.

What needs to be done? 

  • It is recommended to take immediate steps to update your accounting software, in case it does not have feature of Audit Trail.
  • Check with your software provider to ensure that the above features are available to ensure compliance.
  • Discuss with third party service providers for applicability of Audit trail functionality in the software’s used by them for offering services to the Company.
  • Discuss with your auditors on these requirements or any other specific requirements that will help in due compliance of this new requirement.

What is the penalty for non-compliance?

In case a company fails to comply with the said requirements:

The managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board in this regard, shall be punishable with fine which shall not be less than fifty thousand rupees and may extend to five lakh rupees.

The fact about the non-compliance shall be disclosed by the auditors in the auditors’ report.
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