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All Companies to Use Accounting Software where Audit Trail Feature Enabled

The Ministry of Corporate Affairs (MCA) has issued a notification (Companies (Accounts) Amendment Rules, 2021), that every company which uses accounting software for maintaining its books of account shall use only the accounting software where there is a feature of recording audit trail of each and every transaction, and further creating an edit log of each change made to books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

Applicability: Audit trail rule for businesses using accounting software from 1st April,2022 In order to curb the chances of fraudulent transactions or manipulation of in the books of accounts of the company and to increase the chances of the fraudulent transactions being identified by the Auditors of the Company this amendment will be a milestone.

Auditors now will be in a better position to comment on the authenticity of the books of accounts and will have more chances to reduce risk by way of checking the trails and logs available in the system.

What is audit trail?

An audit trail is a record of financial transactions. The audit trail is, however, not simply a record: it is listed in order, step-by-step, and serves as proof of a transaction’s history, right from recording to tracking all changes that may take place. They can be used to keep track of and verify various types of transaction

How does audit trail work?

Audit trails must have a few key details to provide comprehensive information about a transaction. To get these details at an enterprise level, however, a certain audit trail framework must be set up. Every access made to the accounts and records of the company should be tracked. Every edit made to any information must be recorded with the name of the person who did it and the time it was done. If any information was deleted, that also should be recorded.

Following are the key financial details to track as part of the audit trail:

· Any changes involved in the transaction

· The person who partook in the transaction

· The time at which the transaction took place

· The time at which the modification or edit took place

Example of audit trail

Accounting Software provides the ideal example for audit trails. Once you enter a transaction in the software, the software will maintain a record of it. Any further edits made to the details, such as a change in the amount or change in the name against which the entry is made, will also be tracked by the software along with the user who made the changes and the time it was changed. Even if some transactions were to be deleted, the software will track that as well and keep the record of everything since the original entry was made.

This means that every transaction can be checked from its entry to its deletion. This eliminates the chance of anyone making fraudulent changes that cannot be traced and reduces the stress on business owners

What is purpose of an audit trail ?

The main reason for documenting everything that a company or its employees do is to have a record that can be revisited if the need arises. In case of any discrepancy, you have a pathway that can lead to the erring or fraudulent transaction which is causing the discrepancy. The trail is basically a way to ensure that there are no gaps in data that may lead to a blind spot, making it impossible to determine the cause of the error. It also enables the company to locate external breaches and interference. It is also a mandatory requirement for notified companies to stay compliant

What are the benefits of an audit trail ?

·Accountability: There are several internal and external benefits of having a strong audit trail. It makes sure that everyone who is involved in transacting business has the details of their actions are being recorded. This draws a clear path to hold a user who may have undertaken a fraudulent or erroneous transaction.

· Intrusion detection: If someone is not authorized to perform a certain activity, that will also be recorded. It will help in detecting that an unwanted entity has access to information they should not and help bolster security.

· Fool proof : There is also the advantage of proving that the company books are clean and in a healthy state which gives a big boost in the valuation of the company as well as generating funds through loans or by raising capital.

·Staying compliant: There is the obvious advantage of staying compliant with the laws of the land as well as internal policies.

At present the consequences of non-compliance are not known and the MCA may clarify these soon.

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