MCA: Submission requesting for clarity in provisions requiring companies to adopt accounting software having audit trail feature

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

MCA: Submission requesting for clarity in provisions requiring companies to adopt accounting software having audit trail feature

Tejasvi

@tejasvi

March 9, 2023

Public Policy

824

As per Rule 3(1) Companies (Accounts) Rules 2014 as amended by Companies (Accounts) Amendment Rules 2021 (Amended Rules), a company using accounting software for maintaining its books of account is required to use such accounting software which has a feature to record audit trail of every transaction, create edit log of each change made in books of account along with the date when the change was made and ensure that the audit trail cannot be disabled. Companies are required to comply with these requirements from April 1, 2023.

Based on inputs from the Industry, we have made a submission to Ministry of Corporate Affairs (MCA) requesting for clarity on the following aspects:

Definition of accounting software and whether accounting software include supporting systems/applications

The term ‘accounting software’ is not defined under the Companies Act, 2013 (Act). Even the Amended Rules do not provide clarity on what constitutes ‘accounting software’. In general parlance, an accounting software would mean an application that records and processes accounting transactions, within various modules. The Amended Rules do not provide clarity as to whether accounting software includes sub-ledgers and supporting systems/applications.

We believe that only the General Ledger, that generates and stores financial transactions, is covered under this amendment. However, an alternate interpretation could be that all supporting systems/applications through which numbers flow into the General Ledger for generation of financial statements, would constitute ‘accounting software’. This interpretation could result in complexity in implementing an appropriate solution for organisations using large number of systems to process data that ultimately resides in the General Ledger. Hence, it would be important to get some clarity on this aspect.

Whether a change management process/log be considered adequate for compliance with these provisions?

It is important to clarify that if the industry has implemented adequate controls around change management (say Internal Controls over Financial Reporting under the Act), would this be considered adequate for compliance with the Amended Rules. This will enable the industry to demonstrate the changes made using change management controls.

Details required as part of the audit trail and edit logs

The term “Audit trail” is not defined under the Act. Even the Amended Rules do not provide any guidance on this aspect. In general parlance, audit trail includes all information necessary to trace a transaction to its source document such as invoice no., invoice date, date of recording, description, who posted the transaction, etc. Clarity on this aspect would provide certainty to the industry.

The Amended Rules requires a company to maintain “edit log of each change made in books of account along with the date when such changes were made”. We understand that edit log should be able to generate the data regarding any change made to details of original transaction (amount, description, record date, invoice no.), and should be recorded along with the date of such change. Clarity on whether the intention of Amended Rules is to capture edit log containing only details of changes to transactions posted will be helpful.

Requirements in case transaction level data is posted in supporting system/application and consolidated entry is interfaced to the General Ledger

Clarity is required in cases where the transaction level data resides in a separate system. In such cases, does the audit trail have to be available in the separate system and hence that system will be considered to be maintaining books of account or does the interfacing with the General Ledger mean that the transaction now resides in the General Ledger, and hence other systems would not need to be included under the requirements.

Consideration of human error:

We understand that the intent of the government to introduce the amended rules is to track, penalise, and discourage fraudulent changes in accounting entries. However, it is important to note that the amended rules do not give any consideration to ‘human error’ involved. For instance, while making a sales entry of INR 1990, if the user erroneously enters INR 1099, they will need to change the same. An audit trail of such trivial nature will have unintended consequences and may lead to highly unproductive outcomes.

In this regard, we have requested MCA to provide clarity on the above aspects This will enable Industry to make the required changes in their accounting software, in order to be complaint with these provisions.

To ensure certainty on compliance obligations, we request MCA to set up a process of certification or approval of the software so that the industry can be certain on the compliance parameters. Once MCA has provided guidance on the above points and enabled a process of
certification/ approval, a reasonable time may be given to incorporate these in the ERP/ accounting software.

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Tejasvi

Call for Inputs: SEBI's consul...

Swapnil