The new software requirements for maintaining books of accounts taking effect on Thursday do not prevent companies from correcting transactions and fixing errors but only seek to prevent them from hiding changes, a government official said.
The new requirement of preserving an audit trail of every transaction in the books of accounts was the result of insights from past investigations into corporate fraud, the official said. “These revealed that some companies kept fudging their books by continuously changing transaction details. The idea is to prevent that. One is free to make corrections and rectify errors. But do not hide these from regulators. The best antidote for misgovernance is transparency," the official explained.
The Companies (Accounts) Amendment Rules notified last Wednesday mandated that companies record an audit trail of all transactions. It specified that the accounting software should create an edit log of all changes made in the books of accounts, which cannot be disabled. Industry watchers said some of the premium accounting software available in the market allowed disabling of changes in entries.
Maintaining books of accounts at the registered office of a company or at any other specified office for eight years from the end of the financial year is a statutory requirement under the Companies Act. The documents to be retained include records of purchase and sale of items, items of cost, vouchers, minutes and registers in physical or electronic mode. There are similar requirements under the Income Tax Act and goods and services tax (GST) laws too.
The increased transparency requirement in maintaining books comes at a time when the government is conducting a drive against fake invoice rackets and has mandated real-time uploading of business-to-business transactions of entities to a portal run by the National Informatics Centre to check evasion of GST.
The sales threshold for companies required to do e-invoicing will be lowered from ₹100 crore now to ₹50 crore from 1 April. Also, central and state governments have scaled back the extent of input tax credit available to businesses where vendors have not uploaded details. It is now capped at 5% compared to 20% in October 2019. The trend shows individual transactions of businesses, invoices and books of accounts are receiving regulatory attention.
Industry players said that even if businesses are currently using a software without audit trail facility, they will be able to make the transition. “Even if they are using a system that doesn’t fulfil this requirement, they can switch. The effort involved comes down to how much data and complexity the current system is handling. Switching to an audit-trail-enabled system can be done in phases," explained Prashant Ganti, head of product management–global tax, accounting and payroll solutions at Zoho Corp. Pvt. Ltd. Zoho Books, the business accounting software from the company, has built-in audit trail functionality which enables an auditor to confidently attest to the veracity of the records, said Ganti.
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March 29, 2021 at 02:11AM
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