In 2024, significant amendments were made to the Companies (Audit and Auditors) Rules, 2014, introducing new requirements under Rule 11(g) concerning audit trails. Below is a detailed table to help you understand the new requirements and ensure compliance, along with suggestive responses or remarks by the auditors.
| Question | Response | Auditor's Remarks |
|---|---|---|
| 1. Is there any exemption for small and medium companies from maintaining books of account in accounting software with an audit trail feature? | No, there is no exemption. Every company, regardless of size, must maintain books of account in accounting software with an audit trail if they choose to keep their records electronically. Non-compliance will require the auditor to modify their report under Rule 11(g). This requirement is outlined in Section 128(1) of the Companies Act, 2013, and Rule 3 of the Companies (Accounts) Rules, 2014. | Auditors should ensure that all companies, irrespective of size, comply with this requirement. If not, they must report this non-compliance under Rule 11(g). |
| 2. Is there a requirement for auditors to report on the audit trail feature in their limited review report for listed companies? | No, currently there is no such requirement. The Companies Act, 2013 and SEBI Regulations do not mandate auditors to report on the audit trail feature in their limited review report for listed companies. Auditors focus on this aspect during their annual audit report under Rule 11(g). | Auditors are not required to comment on the audit trail feature in their limited review report for listed companies. This should be addressed in the annual audit report. |
| 3. What is the implication for the auditor if the accounting software does not allow modification but lacks an audit trail feature? | All accounting software must have an audit trail feature, regardless of its capability to prevent modifications. If this feature is absent, the company is not compliant with Rule 3(1), and the auditor must report this non-compliance under Rule 11(g). | Auditors must ensure that the software used by the company has an audit trail feature. If not, they should report non-compliance under Rule 11(g). |
| 4. How should auditors report if there are technical glitches in the accounting software affecting the audit trail feature? | Technical issues do not exempt the company from maintaining an audit trail. The management is responsible for ensuring the audit trail is functional throughout the year. If glitches occur, auditors must note this in their report and modify their comments under Rule 11(g) to reflect the non-compliance. | Auditors should document any technical issues and report them as non-compliance under Rule 11(g). Management should be advised to resolve these issues promptly. |
| 5. Can auditors use IT experts to assist with evaluating the audit trail feature? | Yes, auditors can use IT experts. Involving IT specialists can help evaluate the management controls and configurations of the audit trail feature. However, auditors must comply with SA 620 and retain ultimate responsibility for the audit report. | Auditors may engage IT experts but must ensure compliance with SA 620. The responsibility for the audit report remains with the auditors. |
| 6. What if the audit trail feature is not operational throughout the financial year? | The audit trail must be enabled throughout the year, even if there are no transactions during certain periods. If not, auditors must report this non-compliance under Rule 11(g), impacting their reports under Sections 143(3)(b) and 143(3)(h) of the Companies Act, 2013. | Auditors should verify that the audit trail feature was operational throughout the year. If not, they should report this as non-compliance under Rule 11(g). |
| 7. Should audit trail reporting be based on every change or on materiality? | Audit trail reporting applies to all transactions. While auditors may use materiality for selecting samples, the requirement is to maintain an audit trail for every transaction. Reporting is factual and should capture all changes made to the books of account. | Auditors should ensure that the audit trail captures every transaction. Sample selection for testing may consider materiality, but the audit trail itself should be comprehensive. |
| 8. Should auditors modify their report if there are no adverse findings but the accounting software lacks an audit trail feature? | Yes, auditors must modify their report. Even if there are no adverse findings in the financial statements, the absence of an audit trail feature requires auditors to note this non-compliance under Rule 11(g). | Auditors must report non-compliance under Rule 11(g) if the audit trail feature is absent, regardless of other findings. |
| 9. What should auditors do if the software cannot retain the edit log due to limitations? | The software must retain the edit log. If the accounting software cannot retain the edit log, it does not meet the requirements of Rule 3(1). Auditors must report this limitation and modify their comments under Rule 11(g). | Auditors should confirm that the software retains the edit log. If it does not, they must report this as non-compliance under Rule 11(g). |
| 10. Is it necessary to report the effective date of audit trail implementation? | No, reporting the effective date is not required. However, if the audit trail feature was not operational throughout the entire reporting period, auditors must note this in their report and modify their comments under Rule 11(g). | Auditors need not report the effective date but must ensure the audit trail feature was operational throughout the reporting period. Any lapses should be reported as non-compliance under Rule 11(g). |
These guidelines ensure that all companies maintain accurate and tamper-proof financial records using accounting software with audit trail features. For detailed guidance, refer to the respective sections of the Companies (Accounts) Rules, 2014, and the Companies Act, 2013.
