Postponement of Audit Trail Rule in Accounting Software to 1st April,2022


mandatory to use audit trial in accounting software from 1st april 2021
| Updated on: September 16, 2021

The Ministry of Corporate Affairs (MCA) recently issued an amendment notification against the principal Gazette Notification No. GSR 205 (E) dated 24th March 2021 - Amendment to Rule 3(1) of Companies (Accounts) Rules 2014 which seeks to bring the audit trail rule in accounting software.

According to the amendment, the new audit trail rule in accounting software will now be implemented from 1st April,2022 which was originally planned for the current year. This is a welcome move for the businesses, chartered accountants, and software providers as it provides ample time to understand the requirement and implement it.


According to the notification issued on 24th March, 2021, all the businesses who are using accounting software for maintaining books of accounts should have audit trail feature comprising of the following:

  • Recording audit trail of every transactions
  • Creating and audit log of each change made in the books of account,
  • Capture the date details when such changes (edits) were made,
  • Software to ensure that the audit trail cannot be disabled.

Further, Point (g) of Companies (Audit and Auditors) Amendment Rules, 2021 states ‘whether the company has used such accounting software for maintaining its books of account which has feature of recording Audit Trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the Audit Trail feature has not been tampered with and the audit trail feature has been preserved by the company as per the statutory requirements for record retention’

Highlighted Concerns

These amendments reflect a laudable intent of the government to bring in more transparency and improve compliance.  Although at a conceptual and regulatory level, the requirement of audit trail is very important and apt, there were a few concerns that many associations, trade and industry bodies observed and raised with the ministry. These concerns emanated with respect to the operational areas of businesses and were highlighted to the ministry via representations made by these bodies:

  • While the audit trail aims to track, penalize and discourage fraudulent changes in accounting entries, it is important to note that there is an aspect of ‘human error’ also involved in this subject. One such example, among the many is, ‘while making a sales entry of INR 1990, if the user by mistake types INR 1099, they will need to change the same afterwards to reflect the on-ground reality.’ This, however, will also get recorded in the audit trail and may lead to unnecessary difficulties for both the auditor and the business in question. Any model which relies on tax officers’ intervention and increases the burden on businesses is likely to fail.

  • The law mandates that the business use a software which is audit trail compliant, the expectation from the Business Owners as well as the Chartered Accountants is that they endorse and undertake to the government that the businesses are audit trail compliant. However, with the current ambiguity in the exact description and scope of Audit Trail, that undertaking would be difficult to give. Also, it will be difficult for the business owners to ascertain with complete confidence whether the software they are using is completely audit trail compliant. The regulation needs to address this in the right manner so that honest meaning people are not penalized for things like lack of technical expertise, lack of clear understanding, etc.

  • Even if a software claims it is audit trail compliant, and assuming it actually is – there is no way to completely ensure that the application can be tamper-proof, hack-free, to disable or disturb the feature that the software company created. In such a scenario, none of the involved parties can be held accountable, since the software provider gave the feature perfectly, and the business owner/ auditor cannot be expected to be technologically enabled to detect/ avoid such hacking/ tampering with the application code.

Way forward

The ministry has graciously recognized the concerns and has deferred the implementation of these amendments to April 1st 2022 . Over the next few weeks, we would be consulting with MCA, senior practitioners, CAs and other industry members to understand the impact and ease of application of these notifications from a practical standpoint, so that we are able to act in the best interests of not just our customers, but also act in the interest of all MSME business owners and that our product gets ready to help them comply with new audit trail rule well before it is implemented.  We shall keep you posted.


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