AUDIT TRAIL: Start of a Disciplined Accounting Era

“Explore the transformative impact of the Audit Trail in the Companies Act 2013, ensuring disciplined accounting. Learn the who, what, and how of Audit Trails in India. Stay compliant and accountable with audit trail features in software like Tally, QuickBooks, Zoho Books, Busy Accounting Software, and Marg ERP. Understand the consequences of non-compliance and discover how audit trails foster transparency, prevent fraud, and enhance corporate governance. Get expert insights and navigate the challenges of implementing audit trails in your company. Contact us for assistance in adopting disciplined accounting practices.”

The Companies Act 2013 introduced the concept of an audit trail, which refers to the systematic record-keeping of all transactions and actions taken by a company. The purpose of the audit trail is to provide transparency and accountability in the financial and operational activities of the company. The impact of the audit trail on companies is significant. By maintaining a comprehensive audit trail, companies can ensure that all financial transactions are properly documented and accounted for. This can help prevent fraudulent activity, identify errors and discrepancies, and provide evidence in the event of legal or regulatory investigations. The audit trail requirement also helps promote good corporate governance practices. It requires companies to maintain accurate and reliable records, which can help them make informed decisions and operate more efficiently. Additionally, it helps build trust and confidence among stakeholders, including investors, creditors, and regulators.

However, the implementation of the audit trail requirement can also pose challenges for companies. It requires significant resources and expertise to establish and maintain an effective audit trail system. Companies may need to invest in new technologies, hire additional staff, or seek external support to meet the audit trail requirements.

There are several software solutions available in India that offer audit trail and edit log features. Some of these software solutions include: Tally: QuickBooks: Zoho Books: Busy Accounting Software Marg ERP:

Q.1 Who requires to maintain Audit Trails right now in India

Only companies under companies act has this compulsion , LLP, partnerships, Societies, trusts, are out of this requirements.

Q.2 Whether all Companies under Companies Act are required to maintain Audit Trail / Edit Log?

Yes, all companies including OPC, Small, Dormant, and Foreign companies are required to maintain the audit trail in India .

Q.3 From when this requirement is made applicable?

This requirement of audit trail made applicable from 01.04.2023

Q.4 What will be the consequences if Audit trail not maintained ?

This will be violation of section 128 and a penalty of minimum 50 thousand to Maximum 5 Lakhs could be imposed.

Q.5 is this requirement applicable to companies which are maintaining books of accounts on manual basis?

No , but the auditor in his report has to disclose this fact as the company is not maintaining books of accounts on computer software hence reporting for audit trail is not required.

Q.6 What if the company is maintaining multiple software for accounting?

Every software which is integrated with accounting software should have audit trail and edit log feature.

Q.7 Can be enable and disable Edit log any time during the year ?

No, Edit log should always be on enabled mode throughout the year if it made disabled any time auditor will give statement of fact about tempering with edit log in his report.

Q.8 what if company is not recording the transactions timely, company has part time accountant who is making entries monthly , what will be impact of the same?

Though delayed accounting is nowhere directly prohibited in law, but as a prudent Internal Control accounting should be done on timely basis , undue delay accounting of transactions is an indication of fraud risk factor to the auditor under SA 240 , notified under section 143(10) of the companies act. Further the companies in which director responsibility statement is to be given under section 134(5). it is declared by the directors that internal financial control of the company are effective throughout the year and auditor also required to give a report on internal financial controls.

Q.9 What discipline this audit trail provision will ensure in companies ?

Following discipline will be ensured through audit trail for example:-

– Negative cash balance in accounting software –  subsequently rectified by the accountant by entering cash receipts on a later date in back date

– Cash transactions entered after the year end to adjust the profits

– Back dated entries after year end to adjust the profits

– Cancellation of vouchers at the year end to reduce income or reduce expenses

– Splitting the transactions subsequently to avoid disallowances under income tax .

Q.10 If a company made edit log on today, will it also record the adjustment done in 2022-23 accounts? Whether they are subject to audit

Yes, all edits will be in log, but they are not subject to 22-23 audit but auditor may refer them in 2023-24 audit for opening balances.

Q.11 what is the first thing shall be done in accounting software like tally after enabling the edit log?

Restrict the administrative right of enabling or disabling edit log to higher authority in company. Create proper log ins according to duties assigned to accounting staff because the edit log will give details about time, username, changes and all these three details are mandatory in edit log feature, if login ids are not properly created it would be serious laps in internal financial control.

Q.12 Can a small company outsource its accounting to have disciplined accounting with edit log?

Yes, by enduring that the accounting firm has all these edit log feature and their system auditor will give a type 2 report on internal control related to edit log.