Nature of Audit Trail Requirements
Effec ve from 1st April 2023: Is your HR
So ware Ready?
What is Audit Trail?
An Audit Trail or an ‘Audit Log’ is a linear record or set of records which provides a log of the sequence of proceedings that have affected the system at any me. It is required to log and keep the evidence of every opera on, procedure or event that takes place in the system to ensure complete transparency to anyone undertaking the audit
An audit trail can also be explained as a sequen al set of records that provides a history of a transac on by which the accoun ng or other financial details can be traced to their source. Audit trails are used to verify and track many kinds of transac ons, such as accoun ng, payroll, taxes, trades etc. Audit trails can document their reports in either paper or electronic records.
Also Read: Union Budget 2023 Highlights: New Tax Slabs for Salaried Taxpayer
Maintaining an Audit Trail
Audit trails usually begin with a source document, which is the ini al origin point of the financial transac on. It can be something as simple as an invoice, a receipt, or a purchase order. If you are maintaining a manual audit trail via a ledger, you need to a ach copies of the documents along with it as proof of the transac on or ac vity.
Hence, modern organiza ons are using dedicated so ware to make things easier by tracking every change automa cally and recording them. The recorded informa on log will remain secure and can be easily retrieved whenever required.
An ideal solu on to tackling common audit trail challenges is to use a cloud accoun ng system, which provides secure data storage. Such so ware makes it easier to generate reports for audit trails.
For example, let us consider the case of an invoice, that requires details such as items, prices, etc. With the dedicated so ware, you can save the informa on in the database, and prefill the invoice you create later with this informa on.
In case you are not using a dedicated system, so ware equipped with an audit trail module can easily store logs of any transac ons and capture any changes made to them since they were created, along with the user’s iden ty, date, and me.
Statutory Provisions changed The Companies Rules, 2014
The MCA no fica on dated 24th March 2021 s pulated a new proviso in Rules 3(1) of The Companies (Accounts) Rules, 2014, which states that
“Provided that for the financial year commencing on or a er the 1st day of April 2021, every company which uses accoun ng so ware for maintaining its books of account shall use only such accoun ng so ware which has a feature of recording an:
● Audit trail of each and every transac on
● Crea ng an edit log of each change made in books of account along with the date when such changes were made; and
● Ensuring that the audit trail cannot be disabled ”
Further changes were made by the MCA no fica on dated 1st April 2021, which subs tuted the date ‘1st day of April 2021’ with ‘1st day of April 2022’. Another change was made recently by the MCA no fica on dated 31st March 2023, which subs tuted the date ‘1st day of April 2022’ with ‘1st day of April 2023’.
With this no fica on, the MCA has made it mandatory from 1st April 2023 for any organiza on undertaking business in India to add the audit trail module in their accoun ng so ware.
The audit trail facility should also be a part of your payroll system. While there is no specific requirement from the authori es to audit payroll details specifically, not having an audit trail for your employee payroll could result in a nega ve remark in the scru ny. It maybe even be considered an excep on, if the audit trail feature was not opera ng during the repor ng year, leading to a nega ve remark.
Changes in Auditor Report
The Companies (Audit and Auditors) Amendment Rules, 2021, effec ve from 1st April 2021 and the Companies (Audit and Auditors) Second Amendment Rules, 2021, effec ve from 01st April 2021, have the following clause inserted in Rule 11 of the Companies (Audit and Auditors) Rules, 2014 on which the auditor of the company will give their views and comments while genera ng the audit report:
“Whether the company, in respect of financial years commencing on or a er the 1st April 2023 has used such accoun ng so ware for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transac ons recorded in the so ware and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record reten on.”
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