Audit Trails Under The Companies Act: A Hazy Path Ahead?

1. Overview

The Ministry of Corporate Affairs ("MCA"), in its continuing drive to improve transparency and bolster integrity of financial reporting has amended the Companies (Accounts) Rules, 2014¹ ("Accounts Rules") requiring companies to ensure that the accounting software used to maintain books of accounts has the following features and attributes:

• recording audit trails for each & every transaction;
• logging the edits made to the book of accounts along with the date when such an edit was made; and
• ensuring that the audit trail cannot be dis-abled.

The Companies (Audit and Auditor) Rules, 2014 ("Audit Rules") have been correspondingly modified² wherein auditors are now required to report, as part of the auditor's report, as to whether, the accounting software used by the company being audited has the feature of recording audit trail (edit logs), the audit trail feature was operational throughout the financial year and had not been "tampered" with and