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CA Final · Advanced Auditing, Assurance and Professional Ethics · Digital Auditing & Assurance

Under the Companies Act, 2013 audit rules on maintaining books in electronic form, Arora Steels Ltd keeps its books on a cloud server located outside India with daily backups kept only on the same server. The auditor is evaluating reporting under the Companies (Audit and Auditors) Rules, 2014. Which conclusion is most appropriate?

The auditor should report on non-compliance with the electronic books requirements, because the rules require backups of books kept electronically to be maintained on servers physically located in India. Offshore primary storage alone is not prohibited, but keeping backups only on the same offshore server fails the requirement.

  1. ANo reporting is required because the cloud provider is reputable
  2. BThe auditor should consider reporting on the compliance with requirements for books kept in electronic form, including that backups are kept in India on servers physically located in India on a periodic basis, and the absence of this should be reported appropriatelyCorrect
  3. CThe matter is limited to the tax audit report and is not relevant to the Companies Act
  4. DThe auditor should resign because books outside India are prohibited in all cases

Explanation

The rules require, for books kept in electronic mode, daily backups on servers physically located in India, and the auditor's report must address compliance. Backups kept only on the offshore server do not satisfy this, so a reporting consequence arises. Resignation is unwarranted since offshore primary storage is not prohibited if backups are in India.

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