Audit Trail is mandatory for all the GST registered persons

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Audit trail mandatory in accounting software

 MCA has issued a notification on 1st April 2021 to defer the requirement of an audit trail in the accounting software by a year for every company to 1st April 2022.  
(Click here to read date extension notification)

MCA has made it mandatory for every company to use accounting software that can record audit trail/log.

Was it mandatory to maintain the audit log for all the GST registered taxpayers w.e.f 1st July 2017?

Social media and news portals were flooded with varied reactions mainly negative remarks after MCA mandated the requirement of audit log/audit trail in the accounting software for companies. Whereas when the same requirement for maintaining books of accounts was laid down by the GST Rules for all the registered taxpayers from the day GST was rolled out.

 What will change with MCA Notification issued on 24th March 2021? 

⇒ A proviso to sub-rule (1) of Rule 3 will be inserted.

⇒ It will be applicable to every company be it a private company or a public company.

⇒ The above proviso will be made effective for every company from 1st April 2021 extended to 1st April 2022 i.e for the financial year beginning from 1st April 2021 extended to 1st April 2022.

⇒ Every company which maintains books of accounts electronically will have to use the accounting software that records an audit trail.

Note: Sub-rule 1 of Rule 3 of  Companies (Accounts) Rules, 2014, mandates every company to maintain books of account & other relevant books and papers in electronic mode.

Click here to download the MCA’s Notification dated 24.03.2021 in this regard

 What do you understand by audit trail/audit log? 

An audit trail is documentary evidence that records a series of activities done in chronological order. It is like an audit log of how and when a transaction was recorded and who edited and when was it edited.

 What basic features would an accounting software mandatorily require for an audit trail? 

Accounting software should have the following features 

⇒ There should be no provision to delete any transaction which is recorded once.

⇒ In case of a clerical error, such transactions should be edited or overwritten.

⇒ An audit log of each such change(editing/overwriting) made should be created date-wise.

⇒ There should be no provision to delete/disable the audit trail/edit log of all the transactions which is created.

 Was it mandatory to maintain the audit log for all the GST registered taxpayers w.e.f 1st July 2017? 

As per sub-rule 8 of Rule 56 of CGST Rules,2017

All the registered taxpayers who are maintaining books of accounts physically are not allowed to erase, efface or overwrite any entry made in registers, accounts, or any document. In case of a clerical error, the entry should be scored out (not erased) and a correct entry shall be recorded under the attestation of the authorized person in this regard.

All the registered taxpayers who are maintaining books of accounts electronically are not allowed to delete any entry made in accounting software. In case of a clerical error, the entry should be edited/overwritten (not deleted) only by the authorized person in this regard. A log for all the transactions shall be created and preserved.

 Practical Problems 

⇒ It will be difficult for small companies to upgrade the accounting software in a week’s time considering the cost involved, knowledge, understanding, and availability. (Time between the date of notification to the effective date of implementation)

⇒ If as per GST Rules, this requirement was already laid down why it is separately being notified for only companies.

⇒ If a registered person under the GST regime were not maintaining books of accounts with an audit trail will this result in rejection of books of accounts? As there is no specific penalty mentioned under the GST Act for the above, will this attract the general penalty u/s 125?

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About CA Ankita Khetan 164 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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