Summary: To ensure compliance with audit trial requirements under Rules 3(1) of the Companies (Accounts) Rules, 2014 and 11(1) of the Companies (Audit and Auditors) Rules, 2014, companies must systematically document and preserve transaction data for a minimum of 8 years. Key reporting requirements include verifying the use of accounting software for transactions under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, and evaluating whether proper books of accounts are maintained as per Section 143(3)(b) and noting any qualifications or reservations as per Section 143(3)(h) of the Companies Act, 2013. An audit trail is a chronological record tracking all changes to accounting data, including who made changes, when, and what was changed. It ensures traceability and integrity of financial data, distinguishing itself from mere backups, error logs, or feature limitations in software. The auditor’s role is to confirm whether the audit trail feature was operational throughout the year, whether it was preserved according to statutory requirements, and if it was enabled for all relevant transactions. The final report will note if the software used for maintaining accounts had the required audit trail feature and if it was used correctly, or if there were issues like tampering or operational lapses.
As per considering the terms and provisions as per Rules 3(1) of Companies (Accounts) Rules, 2014 and 11(1) of Companies (Audit and Auditors) Rules, 2014 defining the terms regarding Audit Trials and other aspects for providing the systematic procedures to authenticating the audit procedures and various transactions recoded in the software and also preservation of the data for the minimum period of 8 years or others as prescribed and amended by the authorities.
To have report on compliance of this provisions, there are 3 reporting requirements apart from internal financial control for financial reporting are:
1. Rule 11(g) of Companies (Audit and Auditors) Rules, 2014: This rule defining about the uses of accounting software that company whether maintain or not, for its books of accounts and the same uses for the accounting transactions and trials for year to year.
2. Section 143(3)(b) of the Companies Act 2013: whether in the opinion of the auditor, proper books of accounts kept by the company and proper examination have been conducted at the time of the audit procedures.
3. Section 143(3)(h) of the Companies Act 2013: “any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith.”
There is a summary of definition about the audit trial and how it is worthy for compliance by the companies:
1. Audit trial is a sequential record of the specific transaction and ledger entry of the specified event or the transaction incurred in the past in the business.
2. An audit trail is a detailed, chronological record whereby accounting records, project details, transactions, user activity, or other financial data are tracked and traced. Almost any type of work activity or process can be captured in an audit trail, whether automated or manual.
3. It is a chronological record that tracks who, what, when, and where of all the activities within a system.
The FAQs given in Implementation Guidance on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules,2014 (Revised 2024 Edition) (hereinafter referred to as ‘the Implementation Guide on Audit Trail’ for brevity sake) clarify that the following do not qualify as “audit trail”:
- Back-ups
- Voucher listings – A mere voucher listing is not an audit trail.
- Error Logs
- Feature in accounting software that does not allow subsequent modification to the transactions/ journal entries posted initially
- The log of the last/latest changes is only maintained and the log of the entire chain of changes is not maintained.
The following features of the audit Trial are as under:
1. Visible trial of evidence providing Traceability: An audit trial is the visible trial of evidence that records the transactions and entries of the accounting aspects contained in the statements and records kept in the software.
2. Chorological recording of data: Audit trial is a chronological recording of any addition, deletion and modification of the entries in the software.
3. Contents of recording of data: There are various contents required to be maintained with the following information like Timestamp, USER ID of the person who has access to the entries, reference of the transaction and the last status of the entries or transactions made in the software.
4. Stage of enable of data: Depending on the features available in accounting software, Audit trails may be enabled at the accounting software level or captured directly in the database underlying such accounting software.
The auditor is required to report on the audit trail under the section ‘Report on Other Legal and Regulatory Requirements’. The auditor is required to comment on whether the company is using an accounting software which has a feature of recording audit trail (edit log), for this auditor shall verify:
1. Whether the audit trail feature was enabled/operated throughout the year?
2. Whether the audit trail has been preserved as per statutory requirements for record retention?
3. Whether the audit trail feature was enabled/operated throughout the year?
“All transactions recorded in the software’ would refer to all transactions that result in change to the books of account. Any software used to maintain records or transactions that fall under the definition of Books of Account as will be covered within the ambit of this Rule.
Management is responsible for maintenance of books of account in electronic mode and the Auditor is responsible to check audit trail enabled for transactions which result in a change to books of account.
And after the company or entity has complying with the applicable provisions and compliance requirements related to the Audit trials so the auditor giving the remarks on the said as like:
“Based on our examination, the company, has used an accounting software ABC which is operated by a third party software service provider, for maintaining its books of account and in absence of [state the type of control report] we are unable to comment whether audit trail feature of the said software was enabled and operated throughout the year for all relevant transactions recorded in the software or whether there were any instances of the audit trail feature been tampered with.”
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