Auditor’s Reporting for Audit Trails
January 02, 2025
Applicability of Audit Trails Requirement
Proviso to Rule 3(1) of the Companies (Accounts) Rules 2014 provides that for the financial year commencing on or after the 1st day of April, 2023, 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 trails 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 trails cannot be disabled.
Auditor’s Reporting Requirements for Audit Trail
To have a report on compliance of this provision by the companies, there are 3 reporting requirements apart from internal financial control for financial reporting (IFCoFR), if any, which may require reporting for the audit trailsby the auditor in this report. These are:
Rule 11(g) of the Companies (Audit and Auditor) Rules, 2014
“Whether the company has used such accounting software for maintaining its books of account which has a 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 has been preserved by the company as per the statutory requirements for record retention.”Section 143(3)(b) of the Companies Act, 2013
“whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him.”Section 143(3)(h) of the Companies Act, 2013
“any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith.”Unmodified Reporting When Audit Trails is Maintained
In case a company is maintaining its books in an accounting software, where audit trails requirements are maintained adequately, an auditor should report for Rule 11(g) in his audit report as under:
“Based on our examination which included test checks, the company has used an accounting software for maintaining its books of account which has a feature of recording audit trails (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trails feature being tampered with.”
Reporting on Preservation of Audit Trail Logs
As regards reporting on preservation of the edit log, the same may or may not be reported, as this being the 1st year to maintain the audit log, so preservation thereof, would apply from next year. In case an auditor wishes to report, he may report in a separate para as: -
“As the proviso to Rule 3(1) of the Companies (Accounts) Rules 2014 is applicable from 1st April 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules 2014 on preservation of audit trails as per statutory requirements for record retention is not applicable for the financial year ending 31st March 2024.”
Reporting When Books are Maintained Manually
In case a company is maintaining its books of accounts manually (i.e., not electronically through any accounting software), then there would be no requirement on the company to comply with audit trails provisions. In such case reporting for Rule 11(g) may be as under:
“The Company is maintaining its books of account manually during the year. Consequently, the company is not required to comply with the provisions related to audit trails and reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules 2014 is not applicable.”
