MCA Audit Trail and Changes in Audit Report: Applicable from 01-04-2022

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The Ministry of Corporate Affairs (MCA) had earlier issued a notification dated 24th March 2021 (Download Notification), where every company which uses accounting software for maintaining 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.



Earlier it was Applicable from 01-04-2021 however MCA further extended its Applicability to 01-04-2022 via Notification dated 01-04-2021. So, here we have another compliance burden from this new financial year. The new rule mandates the use of accounting software that has an audit trail (edit log) feature to record all transactions and track any changes made to the same, with auditors tasked with the responsibility to review and control the same from 1st April 2022

What is Audit Trail ?

๐Ÿ‘‰It is a additional feature on your accounting software which would enable businesses to track all financial activities while helping to maintain transparency and detecting fraud. 

๐Ÿ‘‰It would maintain an edit log of any changes made pertaining to various financial transactions, thereby improving business accuracy. 

๐Ÿ‘‰It is listed in order, step by step, and serves as proof of transaction’s history, right from recording to tracking all changes that may take place.

Key Implications of the Audit Trail ?

๐Ÿ‘‰The accounting software that the company is using should have the capability to track each and every change made in transactions .

๐Ÿ‘‰It should be able to capture the dates and timelines when such changes were made

๐Ÿ‘‰Further, it needs to ensure that the audit trail (edit log) cannot be disabled
The edit log facility is required to be operated throughout the year and can't be tampered with

๐Ÿ‘‰The audit trail (edit log) is required to be preserved according to the requirement of the record retention

๐Ÿ‘‰The rule also mandates CAs to certify whether the accounting software being used is compliant or not.


 Major Concerns on implementation of the Audit Trail ?

๐Ÿ‘‰Audit Trail aims to track, penalize and discourage fraudulent changes in accounting entries, but there is an aspect of ‘HUMAN ERROR’ also involved in this which need to be changed afterwards and it will also get recorded in the audit trail and may lead to difficulties for both the auditor & business in question.

๐Ÿ‘‰Practically in most of the small companies, finalization entries are done at the time of Audit. Real time entries are not economical for such Entities.


Whether Audit Trail is Applicable to Limited Liability Partnership (LLPs) ?

๐Ÿ‘‰No, use of  Audit Trail is not mandatory for LLP but it is applicable for all companies including Small Company.


How it will Impact Auditor of the Company?

๐Ÿ‘‰Ministry come up with Companies (Audit and Auditors) Rules 2021 vide Notification dated 24-03-2021 where Auditor needs to comply with additional reporting requirement including comment on the Compliance of Audit Trail facility by the Company.

What are the Additional Reporting by the Auditor under Companies (Audit and Auditors) Rules 2021?

Other Matters to be Including in Auditors Report:

๐Ÿ‘‰Reporting regarding Advances, Loans & Investment other than disclosed in Notes to Accounts.

๐Ÿ‘‰Receiving of Funds for further lending or investing other than disclosed in the Notes to Accounts.

๐Ÿ‘‰Dividend declared or paid is in Compliance of Section  123 of Companies Act, 2013

๐Ÿ‘‰Comment of use of Accounting Software having Audit Trail & Other rules therein.


Most of the Small Companies uses Tally as there accounting software whether this feature is available in Tally Prime?

๐Ÿ‘‰Tally come up with a new version of Tally Prime called Tally Prime Edit Log which is free with an active TSS Subscription.


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Disclosures and Disclaimer

This article is being furnished for informational purposes only. We make every effort to use reliable & comprehensive information, but we do not represent that the contents of the article are accurate or complete.









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