Audit Trail and Its Importance, Various software

Mandatory Accounting Audit trail Feature:

The MCA vide its notification dated 24th March 2021 had introduced the concept of audit trail by inserting proviso to rule 3(1) of the Companies (Accounts) Rules, 2014. It states that:

For the financial year commencing on or after the 1st day of April 2023[Companies (Accounts) Second Amendment Rules, 2022], every company which uses an accounting software for maintaining its books of accounts, shall use only such accounting software which has a feature of:

• Recording Audit trail of each and every transaction
• Creating an edit log of each change made in books of accounts along with the date when such changes were made
• And ensuring that the audit trail cannot be disabled.

Accordingly, every company should use such accounting software which has inbuilt Audit trail feature in it and not having an option to disable it.

What is Audit Trail?

Audit Trail is a detailed chronological record whereby accounting records, Project details, or Other financial data are tracked and traced. It is a series of records of computer events, about an operating system, an application, or user activities. Audit trail is one of the ways by which Accounting transactions, source of funds or other financial details can be validated.

What is the Importance of Audit Trail?

An audit trail is essential for maintaining compliance, detecting fraud, resolving errors, ensuring accountability, supporting investigations, and driving continuous improvement. It serves as a reliable source of information and evidence, enabling organizations to maintain trust, mitigate risks, and operate in a transparent and responsible manner.

Let’s understand the importance of audit trail with help of few examples below:

1. Deletion/modification of cash receipt/expenses by accountant and using the same for personal benefit. Here due to logging of deletion or modification activities of cash transactions, company can flag this transaction as suspicious and can conduct further investigation to identify fraud.

2. Company purchased goods worth 20 lakhs on 05/03/2023. But, with the motive of manipulating the profitability of company, company changed the date of purchase transaction from 05/03/2023 to 05/04/2023 leading to shifting of expense incurred from FY 2022-23 to FY 2023-24. This leads to an increase in the profit of the company by 20 lakhs for FY 2022-23. However, due to logging of activities, auditors can flag this modification of date of transaction as suspicious and later can conduct further actions or investigations to identify such manipulation in profitability of company.

Few Software that complies with MCA requirement of Audit Trail feature

1. Tally Prime

Tally Prime is a complete business management software for small and medium business. It helps businesses to manage accounting, inventory, banking, taxation, payroll and many more. To adhere to MCA requirements, edit log feature will be enabled by default, without an option to disable it. Even if a company not under the purview of MCA’s guidelines, it can still use the edit log feature for better internal control.

Steps to view Audit trail report in ‘Tally Prime Edit Log 2.1’ are as follows:

• Load company data
• Press Alt+G and select ‘chart of accounts’ and then select any one master from Accounting or Inventory masters.
• Press Ctrl+B for ‘Basis of values option’ and configure as per requirements and save it.
• List of all altered/deleted masters will be displayed. Select any one of them for which audit trail report is needed.
• Press Alt+Q to view edit log of the masters selected.
• All edit log will be numbered serially in descending order. Click on any one of it and audit trail report will get displayed.
• Report can be further configured by pressing F12. Changes happened in masters will be displayed in red text in the report as below:

If audit trail report is needed for individual vouchers or ledgers, select ledger or voucher instead of ‘chart of accounts’ in step 2 and all the remaining steps will be same as above.

2. Zoho Books

ZOHO Books is a comprehensive cloud accounting software which provides all kinds of services such as core accounting, stock trading, bank reconciliation, managing projects, automating workflows etc. To comply with MCA Requirements, Zoho Books comes with audit trail feature for users. Audit trail in Zoho Books is part of the Activity reports in the Reports module of Zoho Books.

Zoho Books maintains a log of every change made to a record in the application along with the nature of change, timestamp, and details of user who performed the action. In short, the audit trail in Zoho Books provides details on the 4Ws i.e., when, where, what, and who.

Steps to see audit trail report in ZOHO Books are:

• Go to the Reports module from the left sidebar.
• Click Activity Logs under the Activity section.
• Click the > Arrow mark on the right side of the activity that you'd like to check.
• Any modification, addition or deletion will be highlighted with yellow, pink and green colour respectively as shown in below audit report:

3. MARG ERP 9+

MARG ERP Ltd. has its expertise in providing Inventory, Accounting and Digital Payment solutions for all SMEs & MSMEs through online & offline services. Various types of software offered by Marg ERP are as follows:

• ERP Software- Download Version
• Online billing & Accounting Software
• Complete Payroll Software
• Mobile Apps for Retailers, Salesman, Owners.

In accordance with MCA requirements, Marg ERP has updated its audit trail feature for users in India. Marg ERP is providing all types of facilities to its customers, as per the policies issued by the government. Marg ERP has made the facility of audit trail available in software, which benefits from April 1, 2023, as user opens a new financial year in the software.

Steps to view audit trail report in Marg ERP 9+ are as follows:

• Load company data.
• Click on ‘Daily Reports’ tab and select ‘Audit trail’ option.
• Configure the report according to requirements (e.g., Period, user etc.) and click on show button.
• Audit trail report with list of transactions will get displayed. Click on any transaction and select Audit trail option.
• Audit trail report for that transaction will get displayed.

Apart from above, there are many other accounting softwares also which fulfil the MCA requirements such as Oracle Netsuite, Gridlex etc.

Key Takeaways

• In short, Audit trail is a system that traces the changes that have been made to a database or file and maintains the edit log of every transaction recorded and changes made to such transaction.
• Audit trail benefits the business in various kinds like fraud detection, compliance, stress free audits, effective internal control, morale check on employees etc.
• As per latest amendment in rule 3(1) of Companies (Accounts) Rules, 2014 – Every accounting software used in business should be having inbuilt audit trail feature which records audit log and shouldn’t have an option to disable it.
• Some of the accounting software which comply with above rule are Tally Prime Edit Log 4.1, ZOHO Books, MARG ERP 9+, ZarMoney, Netsuite etc.