Ahmedabad: In a landmark order with wide-ranging implications for corporate compliance, the Registrar of Companies (RoC), Ahmedabad, has imposed a penalty of Rs 3.5 lakh on a company and its promoter for failing to maintain an audit trail in its accounting software.Under a rule implemented by the ministry of corporate affairs from the financial year 2023-24, companies are required to maintain their books of account using accounting software that has an audit trail (edit log) feature. Statutory auditors must also confirm that the audit trail has remained operational throughout the year and has not been tampered with.In this case, the company’s statutory auditor reported that the accounting software used during FY24 did not have an audit-trail facility, according to sources. Acting on the audit report, the RoC imposed a penalty of Rs 3 lakh on the company and Rs 50,000 on its managing director.Sources said, the lapse was detected during internal due diligence, following which the company and its managing director filed a suo motu adjudication application under the Companies Act.CA Karim Lakhani said, audit trails are crucial for regulatory oversight. “An audit trail captures the original entry, any changes made, and the final version, which is essential during investigations. However, many small companies use basic software that does not support audit trails. If the auditor reports that no audit trail is available, it effectively means the company has not maintained proper books of account, exposing it to penalties.“He added that the RoC’s order is a wake-up call for several companies still using non-compliant accounting softwares. “Directors remain personally liable for such defaults for the relevant financial year.”CS Rajesh Tarpara, central council member of Institute of Company Secretaries of India (ICSI), explained, “The rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, requires auditors to report whether the accounting software used by a company has an audit-trail feature, whether it has been operated throughout the year for all transactions, and whether the audit trail has been preserved in accordance with statutory record-retention norms. However, a large number of companies are often caught unawares of this pre-requisite and thus, some end up facing consequences.”
