On 25th March, 2021, Ministry of Corporate Affairs has amended Schedule III of the Companies Act, 2013 ()and has mandated all the companies to disclose all the Cryptocurrencies holding and dealings in the Balance Sheet and to disclose details of Benami property and also to adopt Audit Trail from 1st April, 2021. This harsh step has been taken to make the Corporate functioning transparent and fraud-free.
Government has issued following 3 crucial rules which are effective from 1st April, 2021–
- Disclose Cryptocurrency Holding
- Disclose Benami Properties
- Audit Trail
Disclose Cryptocurrency Holding
All the companies are required to disclose the Cryptocurrencies holding in their Balance sheet so that government can regulate the virtual currency in India. As the government also proposed the bill on Cryptocurrency to blanket ban the Cryptocurrency.
Therefore, the companies have to disclose following details-
- Firstly give a disclosure of Cryptocurrencies holding in the Balance Sheet from 1st April 2021 onwards.
- Secondly, they have to reveal whether the company has invested or traded in any way in digital currency or Cryptocurrency in the financial year. Moreover, they have to disclose whether they have earned any profits or losses on such cryptocurrencies transactions.
- Lastly, if any person has invested or traded with the company in Cryptocurrency then the company has to give disclosure of such deposits or advances separately also.
Disclose Benami Properties
In case any proceeding has been initiated or pending against any company under the Benami Transactions (Prohibition) Act, 1988 for holding Benami property then such company is mandatorily required to disclose the following details –
- Details of the Benami property
- Acquisition Year of such Benami property
- Total amount of the property
- Details of Beneficiary in respect of the property
- Disclosure in Balance Sheet about the property
- Details of Proceeding against the company related to Benami property
Audit Trail
Audit Trail is a system in which all the transaction of the company shall be recorded in a chronological order along with its source and evidence of the chronology or sequence of the transactions. It is also referred as Audit Log. Thus, it helps to validate and verify the accuracy, source and time of transactions.
Next, the Ministry of Corporate Affairs has given crucial amendment that is all the companies have to mandatorily use such accounting software for maintaining the books of accounts which can record audit trail of each and every business transactions from 1st April 2022.
Moreover, if the companies edit any log of transactions after the first record then the accounting software must keep a record of any change made in the books of account along with the proper dates.
It is also the mandatory duty of the companies to check the audit trail regularly in order to ensure that the audit trail is not disabled. In case the Audit Trail is disabled then the company shall be liable for the same.
Benefits of these Amendments
- Transparency
These changes will increase the transparency in companies as with the help of Audit Trail, companies will record the transactions with proper dates and with accurate data. Once the data is recorded through Audit Trail then the companies cannot change it and if it changes then the details of the change including the date of edit will also be recorded therein.
- Accountability
Secondly, these amendments will make the companies more accountable as the companies have to disclose digital currency holdings and its dealings and proper recording of transactions will also make the accounting system more accurate and accountable.
- Increase in Tax Revenue
Currently, many companies do not disclose actual profits and the digital currency in the balance sheet. Thus, the companies pay less tax. Conclusively, these changes will increase the tax revenue and will result in the boost of economy.
- To prevent the tampering of accounts
Audit Trail will prevent the companies from tampering with the books of accounts. Thus, it will help to show the true and fair view of the books of accounts.
Challenges
These mandatory compliances will become a heavy burden especially on small and medium companies as the companies will have to keep a updated accounting system and accountant unlike now. Even if the data could not be recorded on the actual date due to unforeseeable reason or other reasonable reasons then it would become a heavy challenge for companies to prove the discrepancy.
It is suggested that it should not be a blanket rule applicable on all the companies rather these compliances should be applicable as per the transactions limit.
Click here to read the complete Amendment in Schedule III of the Companies Act, 2013
Knowledge Source:
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