The Ministry of Corporate Affairs (MCA) recently issued a notification regarding the enforcement of Gazette Notification No. GSR 205 (E) dated 24th March 2021 – Amendment to Rule 3(1) of Companies (Accounts) Rules 2014 which attempts to induce a multitude of improvements and enhancements in the system businesses function in India.

The following sections of the notification which invites a special consideration:

  • A provision to Rule 3 (1) of the Companies (Accounts) Rules, 2014 reads, “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 only use a software that has a feature for recording audit trail of every transaction, creating an edit log of each change made in the books of accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”
  • Point (g) of Companies (Audit and Auditors) Amendment Rules, 2021, which reads as – “whether the company has used such accounting software for maintaining its books of account which has the 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 feature has been preserved by the company as per the statutory requirements for record retention.”

Audit Trail is defined as a step-by-step sequential record that provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.

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Goal intended

This amendment assists in strengthening the glassiness and compliance level of the Corporates. This reporting change will intensify accountability among the company’s personnel and facilitate the audit of pervasive controls using technology.

These amendments are directed at deterring tampering of books of accounts, and to assure the true and fair view of books and accounts.


The above-mentioned new regime shall come into dominance w.e.f. 1st day of April 2021.

For Instance: The Financial year concludes on 31st March 2021 and the signing date of the Director’s Report is 25th August 2021.

Whether the Company have to furnish the effect of the amendment in the Director’s Report?

The above-mentioned amendment shall apply to the Companies for the financial year starting on or after 01st April 2021. Therefore, the said amendment shall affect the Financial Statement as of 31st March 2022 i.e. (F.Y. 2021-22)

Accordingly, one can opine that the Director’s Report for the financial year ending 31.03.2021 shall be the same as per the earlier disclosures.

Concrete Influence of the development

The mandatory keeping of an audit trail is a means to assure the modelling of books and any consequent overwriting in the books of accounts. Inducing the audit trails, any person examining the books of accounts can very efficiently trace what alterations have been done to the accounts and can ask the company to justify the purposes thereof.

Additional perks of the Amendment includes:

  • Counter Fraudulent activities
  • Stress-free Audit
  • Easier way of error-correction and time-saving approach


The purpose appears to be to recognise manipulation of electronic accounting records by the management of the corporates to perform a fraud on the interests of the stakeholders and in the process, beat the intention and scope of the law.

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