Use of Accounting Software having audit trail feature

Short Summary:

The Ministry of Corporate Affairs, Government of India, issued notifications dated 24th March, 2021 to amend Companies (Accounts) Rules, 2014  to enhance the disclosures required to be made by the Company in Board Report;

Purpose of Amendment:

By these amendments MCA increasing stringency in compliances and adding numerous additional disclosures in Financial Statement, Directors Report and Audit Report. The main purpose behind these amendments is more transparency.

Ministry has issues Notifications:

S. No. Date of Notification Particular Purpose (Amendment in)
24.03.2021 [1]Companies (Account) Amendment Rules, 2021 Directors Report


Above mentioned amendments shall come into force w.e.f. 01st day of April 2021.

Que: Financial year end on 31st March 2021. Directors Report signed on 25th August 2021. Whether Company have to give effect of amendment in Directors Report?

Ans: Above mentioned amendment shall be applicable on Companies for financial year start on or after 01st April 2021. Therefore, this amendment shall effect the financial statement as on 31st March 2022 i.e. (f.y. 2021-22).

Therefore, one can opine that Directors Report for financial year ending 31.03.2021 shall be same as per earlier disclosures.

Amendment in Rule 3 i.e. Manner of Books of Account to be Kept in Electronic Mode. in Rule 3, in sub-rule (1) the proviso shall be inserted:

Rule 3(1)The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference.

New Proviso: Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its 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.

Audit Trail means, an audit trail is defined as a step-by-step sequential record which provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail. 

Benefit of Amendment:

    • Prevent Fraud
    • Stress free Audit
  • Easy error correcting and time saving

Ques:1 Whether this amendment applicable on every company or exemptions are given to some classes of companies?

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at

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