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The Ministry of Corporate Affairs vide notification dated March 24, 2021, notified Companies (Audit and Auditors) Amendment Rules 2021 and has omitted clause (d) of Rule 11 of Companies (Audit and Auditors) Rules, 2014 and added clauses (e) (f) and (g). Now the auditors should deal with numerous new details and disclosures while preparing financial statements and audit reports as the scope of reporting of auditors has enlarged.
Table of Contents
The amendments in audit reports rules and accounts rules has proposed the following disclosures:
The provisions cast responsibility not just in directors but the auditors are also required to substantiate the statement of the directors by applying the audit procedures. While auditors can have ways and means to know the instances of outward surrogate lending, how the auditors assure there are no instances of inward surrogate lending will need certain new auditing methods.
The amendments can be seen as a way to ensure that the companies don’t disguise for the purpose of distinguishing identity of the ultimate beneficiary of funds. It may also be to check the instances of money laundering and terrorism financing.
As per the amended audit rules, the auditor should report on the compliance with Section 123 of the Act by Company where it has declared or paid dividend. This is to ensure that the companies pay dividend based on their profits and satisfies all necessary conditions and not when the company is going through losses and where it’s impossible to pay dividend to the members.
The reporting of auditors should be in the maintenance of the audit trails and edit logs by companies that opt to maintain their books of accounts in the electronic mode.
From April 1, 2021, companies that maintain their accounts electronically through accounting software will be required to ensure that the software is able to maintain audit trail and edit logs and that it is not disabled at any time. The auditors should also report on the proper maintenance of the systems, as mentioned earlier.
The amendments, with respect to audit report, are expected to be beneficial as the audit trail provides a baseline for analysis of an audit when instituting an investigation. The aim or significance of an audit trail takes many forms based on the organization. The company may use the audit trail for reconciliation, historical reports, for future budget planning, for tax or other audit compliance, for investigation of crime, and or risk management. Further, it is expected to aid curb back dating transactions and make sure that the corporate sector maintains proper books of accounts in a fair way.
Read our article:ERP Implementation and Automation of Financial reporting
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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