From the financial year 2023-24, auditors are required to report on the use of audit trail features within accounting software in their audit reports. This requirement applies to all companies, including small companies.

NOTE:

Please keep in mind that any updated comment made while reporting under Rule 11(g) must also be considered when reporting under Sections 143(3)(b) and 143(3)(h) in line with the Companies Act of 2013.

Modified Wording for Section 143(3)(b):
According to our assessment of the books, the company has kept proper books of account as required by law, with the exception of the items listed in the paragraph below on reporting under Rule 11(g).

Modified Wording for Section 143(3)(h):
The qualifications for maintaining accounts and other related matters are mentioned in the paragraph above on reporting under Section 143(3)(b) and the paragraph below on reporting under Rule 11(g).

Below are the draft reporting formats based on the ICAI’s implementation guide, categorized by reporting type for ease of reference.

1. Reporting when - Use of Accounting Software with Audit Trail Feature & Audit Trail is Not Modified

Following our examination, which included test checks, we confirm that the company has utilized accounting software with an embedded audit trail (edit log) feature to maintain its books of accounts. This feature was operational throughout the financial year and covered all relevant transactions recorded in the software. Furthermore, during the audit process, we did not identify any indications that the audit trail feature had been tampered with.

As the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, the requirement under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 regarding the preservation of audit trails for statutory record retention is not applicable for the financial year ending March 31, 2024.

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2. Reporting when - Books are Maintained Manually & Audit Trail is Not Modified

The company has maintained its accounting records manually throughout the reporting period. As a result, the provisions concerning audit trails under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 do not apply, and the corresponding reporting requirements are also not relevant in this case.

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3. Reporting when - Use of Software without an Audit Trail Feature

We found that the company maintains its books of accounts using accounting software, which does not have the ability to record audit trails (edit logs). Consequently, the audit trail feature was not operational for transactions recorded throughout the financial year.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, reporting under Rule 11(g) related to the preservation of audit trails for statutory retention does not apply to the financial year ending March 31, 2024.

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4. Reporting when - Use of Software with Inconsistent Operation of the Audit Trail Feature

Based on our examination, the company used accounting software with an audit trail feature, except in cases where certain modules, such as the software used for managing property, plant, and equipment, did not have the audit trail function enabled throughout the year. The audit trail operated for all other relevant transactions. No evidence of tampering with the audit trail feature was identified during the audit.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, reporting under Rule 11(g) related to the preservation of audit trails for statutory retention does not apply to the financial year ending March 31, 2024.

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5. Reporting when - Use of Software with Ineffective Operation of the Audit Trail

Our examination revealed that although the accounting software used by the company contained an audit trail feature, it was not effectively operational throughout the period. Specifically, the audit trail was not enabled at the database level for accounting systems ABC (SQL database) and XYZ (DB2 database) to log any direct data changes. For all relevant transactions recorded in the software, this has been the case throughout the year, with the exception of the YYY software's audit trail feature, which was used to maintain payroll records. Additionally, we found no evidence of audit trail feature tampering during our audit.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, reporting under Rule 11(g) related to the preservation of audit trails for statutory retention does not apply to the financial year ending March 31, 2024.

6. Reporting when - Use of Software with Third-Party Software Maintenance

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According to our investigation, the company maintains its books of accounts using accounting software ABC, which is run by a third-party software service provider. However, we are unable to comment on whether the audit trail feature of the aforementioned software was enabled and used for all relevant transactions recorded in the program throughout the year, or whether there were any instances of the audit trail feature being tampered with, in the absence of ZZZ (control report).

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, reporting under Rule 11(g) related to the preservation of audit trails for statutory retention does not apply to the financial year ending March 31, 2024.

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7. Reporting when - Use of Software with Software Migration or Upgradation During the Year

During the financial year, the company transitioned from its existing software ABC to a new system, (name of the software), or upgraded to a higher version. As the process for establishing adequate controls and documenting the audit trail is still ongoing, we are unable to provide conclusive comments on the audit trail functionality for the reporting period.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, reporting under Rule 11(g) related to the preservation of audit trails for statutory retention does not apply to the financial year ending March 31, 2024.

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8. Reporting when - Consolidated Financials with Audit Trail Not Modified

Based on our examination, including test checks and audits conducted by respective auditors of subsidiaries, associates, and joint ventures incorporated in India, all entities have utilized accounting software containing an audit trail (edit log) feature. This feature was operational for all relevant transactions throughout the financial year. No indications of tampering with the audit trail feature were identified by us or the other auditors involved.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, the reporting requirement under Rule 11(g) regarding the preservation of audit trails for statutory record retention does not apply to the financial year ending March 31, 2024.

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9. Reporting when - Consolidated Financials with Audit Trail Modified

Based on our examination, including test checks and audits conducted by respective auditors of subsidiaries, associates, and joint ventures incorporated in India, we confirm that these entities utilized accounting software with an audit trail feature, except for the following instances:

(Provide specific instances here)

No tampering with the audit trail feature was identified during the course of our audit or those conducted by other auditors.

As Rule 3(1) of the Companies (Accounts) Rules, 2014 applies from April 1, 2023, the reporting requirement under Rule 11(g) regarding the preservation of audit trails for statutory record retention does not apply to the financial year ending March 31, 2024.