Companies (Accounts) Amendment Rules, 2021 amended Rule 3 of Companies (Accounts) Rules, 2014 by inserting the following 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.”

• Date of implementation was further deferred to 1st April 2022 and finally implemented w.e.f. 1st April 2023.

• Therefore, Rule 3 created an obligation on the company to implement an audit trail feature in accounting software.

• Along with Rule 3 of the Companies (Accounts) Rules, a corresponding amendment was also made in The Companies (Audit and Auditors) Rules, 2014. A following new clause (g) was inserted in Sub-rule 11:

“(g) Whether the company, in respect of financial years commencing on or after the 1st April 2022, 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.]”

• Therefore, while reporting on Financial statements, the auditor is required to comment on whether the company has implemented an audit trail (edit log) in accounting software and whether the same has operated throughout the year.