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CMA Intermediate · Corporate Accounting and Auditing · Application of Technology in Audit and Audit Trail

A company's accounting software operated an audit trail from 1 April to 31 December, but the feature was disabled from 1 January to 31 March after an upgrade. The company maintains its books in the software for the whole year. What is the auditor's appropriate response in reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014?

The auditor should report the lapse as an exception, because the audit trail was not operated throughout the year for all transactions. Working for nine months does not satisfy the requirement, and there is no prescribed turnover threshold that makes a three-month gap acceptable.

  1. AReport that the audit trail was operated throughout, since it worked for nine of twelve months
  2. BReport the lapse as a modification or exception, since the audit trail was not operated throughout the year for all transactionsCorrect
  3. CIgnore the lapse, because upgrades are outside the auditor's scope
  4. DTreat the lapse as relevant only if the unlogged transactions exceed one-fourth of total turnover

Explanation

The requirement is that the audit trail be operated throughout the year for all transactions recorded in the software. Disabling it for three months means the condition is not met, regardless of the share of months covered. No materiality threshold such as a quarter of turnover is prescribed for treating the feature as having operated, so the exception must be reported.

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