ICAI Issues Implementation Guide on Reporting of Audit Trail

The “Companies (Audit and Auditors) Amendment Rules, 2021″ have been released by the Ministry of Corporate Affairs (MCA) by notice No. GSR 206(E) dated March 24, 2021. (” Audit Rules”), read in conjunction with subsection 3 of Section 143 of the Companies Act of 2013, adding new Rules 11(e), 11(f), and 11(g), and repealing Rule 11(d).

It was reported before that there will be major changes in the audit trail requirements that the accounting software with edit logs will be used from April 1, 2023.

The Rule 11(g) requires auditors to report on the use of accounting software by the company for maintaining its books of account which has a feature of recording audit trail.

An audit trail is a list of all the data modifications that have been done throughout time. Any alteration to data, including newly added, updated, or deleted data, must be documented.

The Auditing and Assurance Standards Board (AASB) of the Institute of Chartered Accountants of India (ICAI) decided to prepare an Implementation Guide to give the members the necessary direction on this new reporting obligation so that the members can effectively carry out their duties.

The Implementation Guide provides comprehensive information on a number of reporting-related topics under Rule 11(g), including the numerous audit procedures that must be carried out. The Implementation Guide will make it possible for company auditors to successfully comply with this Rule’s reporting requirement.

Applicability: To the extent that a business uses accounting software to preserve its records electronically, the audit trail requirements are applicable. The assessment and reporting obligations under Rule 11(g) will therefore not apply in cases where the books of accounts are wholly maintained manually, and the auditor would need to record the situation as a statement of fact in relation to this provision.

The Guide is divided into different 15 heads:

1. Introduction to Amendments to Rule 11(g) of Companies (Audit and Auditors) Rules, 2014
2. Introduction and Scope of the Implementation Guide
3. Management’s Responsibility
4. Auditor’s Responsibility
5. Applicability
6. Preservation of Audit Trails
7. Audit Approach
8. Illustrative Wordings for Reporting
9. Special Consideration in case of Fraud Scenarios
10. Reporting under Rule 11(g) vis-à-vis Reporting under Section 143(3)(i)
11. Obtaining Written Representations
12. Audit Documentation
13. Glossary of Terms
14. Appendix I: Illustrative table showing the accounting software used by the Company
15. Appendix II: Illustrative Management Representation Letter

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