The Ministry of Corporate Affairs vide its notification dated March 24, 2021, has introduced certain amendments in the Companies (Accounts) Rules, 2014 (“Rules”). The effective date of the amendments is April 1, 2021. The amendment provides for certain disclosures to be made in the board report prepared by every company under Section 134 of the Companies Act, 2013 (“Act”) and mandatory use of audit trail feature for accounting software. The amendments have been introduced to further increase the disclosures and streamline the auditing process of companies. The changes introduced are briefly summarized as follows:
- Mandatory use of accounting software for audit trail
- From April 1, 2021, all companies shall be mandated to use such accounting software which has a feature of recording audit trail of each and every transaction and to ensure that the audit trail cannot be disabled. Such use was not mandated before. Earlier, companies were using accounting software for maintaining audit records. However, use of accounting software to record audit trail is new. The requirement of non-disabling of audit trail is aimed at helping in making the transactions transparent and also increasing accountability of auditors to comply with the same.
- An edit log of each change will be maintained in the books of accounts along with the date when such change was made. This will help the companies as well as the auditors in keeping track of all the transactions and maintaining a detailed electronic record along with relevant entries.
- Disclosures in the board report
- Rule 8 of the Rules provides for the information to be disclosed in the board report. With the introduction of the latest amendments, the following additional disclosures have been mandated in the board report:
- Details of any application/proceedings pending under the Insolvency and Bankruptcy Code, 2016 (“IB Code”) during the relevant year along with their status at the end of the financial year. This requirement is surely to benefit all stakeholders of the company, as they will be able to determine the status of the company with respect to any proceedings under the IB Code.
- Details with reason for difference between valuation made during one time settlement and valuation done while taking loans from banks and financial institutions.
The amendments are aimed to make companies more transparent in their functioning and is an appreciated move to include the abovementioned audit trail and disclosure requirements in their board report. The board report is an important document for every company and these disclosures will enhance the corporate governance structure of companies. Further, with respect to use of accounting software to have an audit trail, it will help the auditors to keep a track of all accounting changes as an edit log will be maintained with date of change being made. These requirements shall be applicable from the financial year 2020-21.