Wednesday, March 24, 2021

Enable Audit Trail in Accounting Software w.e.f. 01-Apr-2021

The Ministry of Corporate Affairs (MCA) has notified the Companies (Accounts) Amendment Rules 2021 on 24-Mar-2021 by which an important issue of compliance w.r.t. accounting software w.e.f. 01-Apr-2021 has been announced.

For the financial year commencing on or after the 01-Apr-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.

Thus, we would recommend that all companies take the following steps with respect to their accounting practices immediately:

1) Enable Audit Trail in Accounting Software: Check if your accounting software has an audit trail feature, and enable it. Tally.ERP9 and Tally Prime have these features, as do most SAP, Oracle, Navision versions. Please check with your software provider to activate this feature if not already done.

2) Restrict Back Dated Entries: Controls should be put on recording accounting transactions in previous dates. If your accounting happens in batch processing, dates only for the past one or two weeks may be allowed for the purpose of recording expenses for which invoices are received late by the accounts department. However, all sales and bank transactions should be carried out in real time on the same day.

3) Cash Expenses: Expenses incurred in cash should be entered on the same day, and not later as a form of batch processing after huge cash-in-hand balances build up and the matter of non-recording of cash expenses is recognized.

4) Monthly Reconciliation with GST: Reconcile books of accounts with GSTR-2A/2B, GSTR-1, GSTR-3B on a monthly basis, and record all transactions on timely basis, not waiting for errors to be recognized through quarterly or half-yearly reconciliations.

5) Evaluate MIS Reports - Stocks, Ageing, etc: We recommend a monthly MIS report to be examined to check for stock levels, debtors outstanding, creditors outstanding with ageing reports, and analysis of important financial ratios on a monthly basis if not on a weekly or fortnightly basis so that any issues in non-recording of accounting entries or incorrect accounting are identified immediately and addressed without a delay of over 30 days.