On May 30, 2025, the Ministry of Corporate Affairs (MCA) issued the Companies (Audit and Auditors) Amendment Rules, 2025, introducing significant changes to enhance transparency, accountability, and the integrity of financial reporting in India. These amendments build upon previous reforms, particularly focusing on the use of accounting software with audit trail features and strengthening auditor reporting requirements.
Key Amendments:
Audit Trail in Accounting Software
Clause (g) requires auditors to report on whether the company has used accounting software for maintaining its books of account that has a feature of recording an audit trail (edit log) facility.
The report must confirm that:
- The audit trail feature has been operated throughout the year for all transactions recorded in the software.
- The audit trail feature has not been tampered with.
- The audit trail has been preserved by the company as per the statutory requirements for record retention.
This amendment aims to enhance the integrity and transparency of financial records, making it easier to detect and prevent fraudulent activities. It also aligns with global best practices in financial reporting and audit.
Implications for Companies and Auditors:
- For Companies: There is a need to ensure that their accounting software complies with the audit trail requirements. Companies must also establish robust internal controls to prevent tampering with audit trails and ensure compliance with dividend declaration provisions.
- For Auditors: Auditors must assess the adequacy of the company’s accounting software and internal controls concerning audit trails. They are also required to verify the representations made by management regarding the flow of funds and compliance with dividend declaration provisions.
Conclusion:
The Companies (Audit and Auditors) Amendment Rules, 2025, represent a significant step towards enhancing the transparency and accountability of financial reporting in India. By strengthening auditor reporting requirements and mandating the use of accounting software with audit trail features, the amendments aim to build investor confidence and align Indian corporate governance practices with international standards.
