{Tip 13 by CA Nitesh More}Can Company maintain "petty cash book" or/and "fixed assets register" or/and "inventory register" etc manually & rest books of accounts in Accounting software with Audit Trail features?

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Oct 15, 2024, 9:45:02 PM10/15/24
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Tip 13: Can Company maintain "petty cash book" or/and "fixed assets register" or/and "inventory register" etc manually & rest books of accounts in Accounting software with Audit Trail features?

Ans: Yes, in my opinion. Fixed assets register or inventory register are records related to assets of the company. The management of company will decide the manner of keeping books of accounts. Even, petty cash book can be maintained manually. Proper note in financial statements disclosing the fact should be given. However, company cannot maintain cash book manually & bank book in accounting software. Such a system will not lead to maintain proper books of accounts of the company. Please also note that the company cannot maintain books of accounts manually & also same books of accounts in software without audit trail features. If company maintain books of accounts in software, it has to be with audit trail features only. 

Note: Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report (say, "28 September", in case of shorter notice) & since enquiry about audit trail is a time consuming act. 
Regards,
CA Nitesh More 
Working 4 CA fraternity since 1998

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Note: These tips are personal opinions only. You may not find such tips in Companies Act, implementation guide.

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From: N More <nmor...@gmail.com>
Date: Sat, 7 Sept 2024, 12:34
Subject: (11)Audit Trail is required not only at transaction level, but also at data base level & for each change in books of accounts: CA Nitesh More
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(Tip:11)Audit Trail is required not only at transaction level, but also at data base lavel & also for each changes made in books of accounts. (Practical Guide on Audit Trail by "CA Nitesh More")

78वें स्वतंत्रता दिवस की हार्दिक शुभकामनाएँ!
 
Urgent: Tip 9 on Audit Trail* had already been circulated in our WhatsApp group/ community. Please join: https://chat.whatsapp.com/EN6saGmtlIj9fevuXAx0wP

Relevant Provision: Rule 3(1) of Companies (Accounts Rules) relating to manner of books of account to be kept in electronic mode, is as follows-
"The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India, at all times accessible in India so as to be usable for subsequent reference.
Provided that for the financial year commencing on or after the 1st day of April, 2023, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in “books of account” along with the date when such changes were made and ensuring that the audit trail cannot be disabled."

Comment: 1) Above Rule is not applicable, if manual Records are maintained. 

2) Audit trail is required both at data base level & transactions level.

3) Audit trail is required for each changes made i.e changes in master, group, ledger. 

4) The company maintain books in accounting software, but audit trail is active at transaction level only, it is not active at data base level. *As a result, changes in transactions can be made by changes in data at data base level. This is not acceptable & must be reported by auditor.

Note:
1) Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or before the date of signing of audit report (say, 7 September ) & since enquiry about audit trail is a time consuming act. 
2) These tips are personal opinions only. You may or may not find such tips in Act, Rules or Implementation Guide. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998


(10)Practical Guide on Audit Trail by CA Nitesh More

Tip 10: Can the company maintain books of accounts in accounting software without inventory, however, at the same time, Excel/ spreadsheet is used for calculating the value of opening & closing stock to be feeded in accounting software?

Relevant Provision: FAQ 25d of revised Implementation guide of ICAI states as follows: 

"End-user computing tools like spreadsheets may be used to record transactions or for preparing workings/calculations of amounts to be recorded. For instance, it may be used for preparing working of foreign exchange gain/loss or amortization or tax liability to be recorded in another accounting software (accounting software as identified by management) using the amounts computed in spreadsheet. However, accounting entries may not get auto-posted directly to the accounting software from such spreadsheet. In such case, *the spreadsheet should not be treated as part of books of account and the spreadsheet will not attract the audit trail requirement.* The auditor should evaluate the facts regarding usage of end-user computing tools and accordingly report."

Comment: In my personal opinion, in above-mentioned instance, the company, has used Excel sheet for calculation of value of inventory to be feeded in accounting software, may also be allowed under FAQ 25d of Revised implementation guide.

Note:
1) Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or before the date of signing of audit report (say,7 September ) & since enquiry about audit trail is a time consuming act. 
2) These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998


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From: N More <nmor...@gmail.com>
Date: Thu, 22 Aug 2024, 22:16
Subject: (9)Practical Tips on Audit Trail by CA Nitesh More
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(9)Practical Guide on Audit Trail by CA Nitesh More

Tip 9: Which software require audit trail?

•  Any software that maintains records or transactions that fall under the definition of Books of Account as per the section 2(13) of the Act will be considered as accounting software for purpose of Rule 11(g).

Example: if sales are recorded in a standalone software and only consolidated entries are recorded monthly into the software used to maintain the general ledger (say Tally, Busy) , the sales software should also have the audit trail feature since sales invoices would be covered under Books of Account.

Note: Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report (say, 7 September ) & since enquiry about audit trail is a time consuming act. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:

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From: N More <nmor...@gmail.com>
Date: Wed, 21 Aug 2024, 21:38
Subject: (8)Practical Tips on Audit Trail by CA Nitesh More
To:


(8)Practical Guide on Audit Trail by CA Nitesh More 
Note: These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Tip 8: Should Company pass "bulk entries at quarter end for most of transactions during the quarter" to prepare books of accounts?

Section 128(1) of the Companies Act, 2013 states that every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company.... 

Comment: A Company should follow sec 128 in substance. If a company pass most of transactions at quater end, then Company will itself create evidence in this audit trail era that it had not maintained proper books of accounts for the substantial part of year/quater & ROC may levy penalty u/s 128(6). Such a situation should be avoided. 

Example: The company passes most of entries for translations during the quater end. 
a) On 1.4.2030, there had been inspection by ROC 
b) On 1.4.2028, there had been survey by Income tax department, which passes information to ROC. Can ROC levy panelty u/s 128? 

Ans: RoC may take a view to levy panelty u/s 128(6), which can be Rs 50k to Rs 5 lakhs per director/person in default. 

Note: Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report (say, 7 September ) & since enquiry about audit trail is a time consuming act. 

Regards,
CA Nitesh More 
Chairman(20-21),EIRC,ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:

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From: N More <nmor...@gmail.com>
Date: Wed, 21 Aug 2024, 21:29
Subject: (7)Practical Tips on Audit Trail by CA Nitesh More
To:

(7)Practical Guide on Audit Trail by CA Nitesh More
Note: These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Tip 7: Should Company pass "bulk entries at year end for most of transactions during the year" to prepare books of accounts?

Section 128(1) of the Companies Act, 2013 states that every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company.... 

Comment: A Company should follow sec 128 in substance. If a company pass most of transactions at year end, then Company will itself create evidence in this audit trail era that it had not maintained proper books of accounts for the substantial part of year & ROC may levy penalty u/s 128(6). Such a situation should be avoided. 

Example: On 30.3.24, the company passes most of entries for translations during the year. 
a) On 1.4.2030, there had been inspection by ROC 
b) On 1.4.2028, there had been survey by Income tax department, which passes information to ROC. Can ROC levy panelty u/s 128? 

Ans: RoC may take a view to levy panelty u/s 128(6), which can be Rs 50k to Rs 5 lakhs per director/person in default. 

Note: Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report (say, 7 September ) & since enquiry about audit trail is a time consuming act. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:

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From: N More <nmor...@gmail.com>
Date: Tue, 13 Aug 2024, 20:16
Subject: (6)Practical Tips on Audit Trail by CA Nitesh More
To:

(6)Practical Guide on Audit Trail by CA Nitesh More

Note: These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Tip 6: How to report, if audit trail had not been maintained during the year?

Management of Company may have decided & maintained  audit trail from a date after 1.4.24 (a date later than when it is mandatory to be implemented) . This is a violation & auditor must report accordingly. 

Example: On 30.3.24, Board decided to maintain books of accounts using accounting software with audit trail features from 1.4.24. or The accounting software does not have the features of audit trail during FY 23-24.

Ans: This is a violation. The auditor must report the following:

"Based on our examination which included test checks, the company has used an accounting software for maintaining its books of account which doesn't have a feature of recording audit trail (edit log) facility. However, in our opinion, proper books of accounts stating true & fair states of affairs of the Company, as required under Sec 128(1) of the Companies Act, 2013 has been maintained by the company for the financial year 2023-24."
Note: Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report (say, 7 September ) & since enquiry about audit trail is a time consuming act. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:

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From: N More <nmor...@gmail.com>
Date: Tue, 13 Aug 2024, 09:54
Subject: (5)Practical Tips on Audit Trail by CA Nitesh More
To:

(5)Practical Guide on Audit Trail by CA Nitesh More
Note: These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Tip 5: How to report, if audit trail had been maintained for broken period?

Management of Company may have decided & maintained  audit trail from a date after 1.4.23 (a date later than when it is mandatory to be implemented) . This is a violation & auditor must report accordingly. 

Example: On 30.6.23, Board decided to maintain books of accounts using accounting software with audit trail features from 1.7.23. 

Ans: There is a violation. The auditor must report the following:

"Based on our examination which included test checks, the company has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility & the same has operated from 1.7.23 to 31.3.24 for all relevant transactions recorded in the software. Further, during the course of our audit, we did not come across any instance of audit trail feature being tempered with for the aforesaid period. Additionally, the audit trail has been preserved by company as per the statutory requirements for record retention. However, in our opinion, proper books of accounts stating true & fair states of affairs of the Company, as required under Sec 128(1) of the Companies Act, 2013 has been maintained by the company for the financial year 2023-24."

Note:Plan your resources & time schedule for clients, since all transactions (including adjustment entries) must be passed in software or or before the date of signing of audit report & since enquiry about audit trail is a time consuming act. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:

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From: N More <nmor...@gmail.com>
Date: Tue, 6 Aug 2024, 08:46
Subject: (4)Practical Tips on Audit Trail by CA Nitesh More
To:

(4)Practical Guide on Audit Trail by CA Nitesh More
Note: These tips are personal opinions only. You may not find such tips in Act, Rules or Implementation Guide. 

Tip 4: How to report, if accounts are maintained manually?

Management of Company may have decided to maintain accounts manually. This is not a violation. However, fact must be disclosed by auditor. Apart from this, Management may also disclose such fact in Boards Report also. 

Example 1: On 30.3.23, Board decided to maintain books of accounts manually. However, on 30.6.23, Board decided to again switch to maintain books of accounts using accounting software with audit trail features. 

Ans: There is no violation, in my personal opinion. The auditor may report the following:

"The books of accounts had been maintained manually from 1.4.23 to 30.6.23 & in accounting software from 1.7.23 to 31.3.24. Further, Based on our examination which included test checks, the company has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the said period (from 1.7.23 to 31.3.24) for all relevant transactions recorded in the software. Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with. Additionally, the audit trail has been preserved by company as per the statutory requirements for record retention."

Example 2: On 30.3.23, Board decided to maintain books of accounts manually. 

Ans: There is no violation, in my personal opinion. The auditor may report the following:

"The books of accounts had been maintained manually from 1.4.23 to 31.3.24."

Plan your resources & time schedule for clients accordingly. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:


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From: N More <nmor...@gmail.com>
Date: Mon, 5 Aug 2024, 11:49
Subject: (3)Practical Tip on Audit Trail by CA Nitesh More
To:


(3)Practical Tip on Audit Trail by CA Nitesh More
Note: These tips are personal opinions only. One will not find these either in Companies Act or its Rule or Implementation guide. 

Tip 3: How to audit, if so many edit entries?

No entries should be edited in accounting software. However, if there are a number of edit entries in the accounts for FY 23-24 in the 
accounting software, the responsibility of the auditor is also increased. The auditor must examine that these edited entries from the following two aspects:

✓ The auditor ensure that the accounts reflects the true & fair states of affairs of company. 

✓ The auditor should also examine that these edited entries should not reflect any material misstatements or a fraud in the company. 

Example 1: If narrations are edited to included UTR no , received at evening from bank, it is acceptable. 

Example 2:If entries are edited to understate income or overstate exp. for misstatements, such edit of entries will result in fraud, are not acceptable. 

Plan your resources & time schedule for clients accordingly. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

Join:


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From: N More <nmor...@gmail.com>
Date: Sun, 28 Jul 2024, 19:28
Subject: (2) Practical Tip on Audit Trail by CA Nitesh More
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(2)Practical Tip on Audit Trail by CA Nitesh More

Tip 2: How to audit, if so many delete entries?

No entries should be deleted in accounting software. However, if there are a number of deleted entries in accounting software for 23-24, the responsibility of the auditor is increased. The auditor must examine these deleted entries from the following 2 angles:

✓ The auditor ensure that the accounts reflects the true & fair states of affairs of company. 

✓ The auditor should also examine that these deleted entries should not reflect any fraud in the company. 

Plan your resources & time schedule for clients accordingly. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI
Aspirant/Candidate for CCM from Eastern Region
Working 4 CA fraternity since 1998

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From: N More <nmor...@gmail.com>
Date: Mon, 15 Jul 2024, 15:58
Subject: (1) Practical Tip on Audit Trail by CA Nitesh More



(1) Practical Tip on Audit Trail by CA Nitesh More

Tip1: Pass all entries before 6 September

Since we certify that financial statements are in agreement with the books of accounts, all adjustment & other entries must be passed on or before the date of signing of FS & Audit reports i.e. 6 September generally, except in case of shorter notice, else Audit Trail will reflect otherwise.

Plan your resources & time schedule for clients accordingly. 

Regards,
CA Nitesh More 
Chairman (20-21), EIRC, ICAI,
Aspirant/ Candidate for CCM from Eastern Region, 
Working 4 CA fraternity since 1998
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