Mandatory Audit Trail in Accounting Software

The Companies (Accounts) Rules, 2014 and Companies (Audit & Auditors) Rules 2014 were amended in the year 2021 in which one of the requirement was to maintain compulsory audit trail in the accounting software used by the Companies. The said change was supposed to be implemented from April 1 2021 and which was postponed. The said change is now to be applicable from April 1, 2023.

What is Audit Trail?

In simple words, audit trail is a chronological record of all the transactions which are recorded. Such audit trails contain the time stamps of such transactions and is used to keep the history of changes. It is mainly used to track the history of the original transaction and changes made in the same.

Benefits of Audit Trail

Following are the major benefits attached to the maintenance of the audit trail:

• •  To prevent or to detect the potential fraud
• •  To maintain accountability of a particular transaction
• •  To detect internal intrusion
• •  To prevent data breaches
• •  To comply with the compliance and statutory requirements
• •  To use the audit trail as a proof to the regulators in case of any financial irregularity or suspected fraud
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Features of the Accounting Software used by the Companies

As per the above amended rules, for maintenance of books of accounts, following features in the accounting software are mandatory:

• •  Record of Audit trail for each and every transaction
• •  To create edit log for each change made in the books of accounts along with the date on which such change was made.
• •  To ensure that audit trail can’t be disabled in the accounting software.
• •  Books of accounts should be accessible in India at all times.
• •  To keep back up of books of accounts, documents, other books and papers of the Company maintained in electronic mode including at a place outside India, in servers located in India and to keep back up on a daily basis.
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Responsibilities of the Statutory Auditors

As per the changes in The Companies (Accounts) Rules, 2014 and Companies (Audit & Auditors) Rules 2014, the statutory auditor is required to report in their main audit report about the compliance of the above requirement of relating to the accounting software. The statutory auditor will need to report on the following in pursuant the above requirements:

• •  Whether the Company’s accounting software has a feature to record audit trail?
• •  Whether the audit trail feature of the accounting software was enabled through out the year for recording all the transactions?
• •  To ensure that such audit trail feature is not tampered with.
• •  Whether the audit trail recorded in such accounting software has been preserved by the Company as per the statutory requirements for retention of records?

In view of the above changes, a more responsibility will lie on the statutory auditor’s shoulders to verify the maintenance and integrity of the audit trail. The statutory auditor may have to rely on system auditor with respect to reporting for the integrity of maintenance of such audit trail.

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