diff --git a/README.md b/README.md
index 4407196..8ea7e62 100644
--- a/README.md
+++ b/README.md
@@ -85,9 +85,10 @@ The application provides a RESTful API for managing transactions. See the API do
 
 The application uses semantic versioning (X.Y.Z) with the following components:
 
-- The `VERSION` file is the single source of truth for the application version
+- The `VERSION` file at the root of the repository is the single source of truth for the application version
+- The web UI and application automatically read the version from this file
 - Version changes are managed using the `versionbump.sh` script
-- A pre-commit hook ensures version consistency across files
+- A version history log is maintained in `version_history.log`
 
 ### Version Bump Script
 
@@ -114,10 +115,12 @@ The `versionbump.sh` script provides the following commands:
 
 The version is maintained in:
 - `VERSION` file (source of truth)
-- Docker Compose environment variables
-- Application log messages
+- Docker Compose environment variables (APP_VERSION)
 
-The pre-commit hook runs `tests/test_version.py` to verify consistency before allowing commits.
+The application reads the version from:
+1. The APP_VERSION environment variable if set
+2. The VERSION file in the current directory
+3. The VERSION file at the root of the repository
 
 ## Code Quality and Security