Companies must have audit trail of transactions from next financial year

Will also have to maintain edit log of changes made in books of accounts; experts say no firm will be able to delete an entry, will only be able rectify it

In a move designed to improve transparency in financial reporting and prevent tampering of accounting entries, the Ministry of Corporate Affairs has made it mandatory for companies to ensure that their accounting software records the audit trail of transactions, April 1, 2023 onwards. The notification, which was first issued two years ago, would come into effect in two week’s time after getting pushed forward twice.

MCA has also made it mandatory for companies to maintain the edit log of changes made in the books of accounts.

A senior chartered accountant explained that companies would not be able to delete an entry, only rectify it. “Account keeping will change. Given all these bank failures and a push to digitisation government would like to push this now having deferred it already,” the senior CA said.

“Considering the date of implementation of such software is approaching, companies will have to immediately gear up their accounting software in order to ensure compliance with the said requirement,” said Harish Kumar, Partner, Luthra and Luthra Law Offices India.

Companies would be required to record an edit log of each change made in books of account along with the date when such changes were made. “This is to ensure that the audit trail cannot be disabled,” said Ankit Singhi, partner corporate professionals.

Industry experts said that the accounting software has these features to maintain an audit trail but companies usually disable it.

For instance, if companies want to enter a back-dated transaction then the date of any such change will be recorded and could be questioned as well.

“Usually these transactions are to hide something from users, bump up your sales and revenues. It is an irregularity. Now in search and seizure operation companies can just be asked to show the edit log,” said Rajat Mohan, senior partner, AMRG & Associates said.