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CA Final · Financial Reporting · Accounting and Technology

Nakshatra Fintech Ltd, a listed company, uses an accounting software that has an audit trail (edit log) feature for each transaction. Mid-year, the IT team disabled the feature at the database level for a period of two months to improve performance, and re-enabled it later. Under the Companies (Accounts) Rules as amended, which statement is correct?

The audit trail must operate throughout the year for all transactions and cannot be disabled, so the two-month gap is a non-compliance that the auditor must report. There is no value or turnover threshold, and the requirement is not a year-end check.

  1. ANo issue arises because audit trail is only required at year-end
  2. BAudit trail must be enabled throughout the year and cannot be disabled; the lapse needs reporting by the auditorCorrect
  3. CAudit trail is required only for entries above Rs 1 crore
  4. DAudit trail is required only for companies with turnover above Rs 500 crore

Explanation

The rules require companies using accounting software to use software with a recorded audit trail of each change, operated throughout the year for all transactions, and the trail cannot be disabled. The auditor reports on compliance, so the two-month gap is a reportable lapse. The monetary and turnover thresholds in the other options do not exist.

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