Last year, the Ministry of Corporate Affairs (MCA) had given companies a year to implement its latest amendment related to audit trail requirements. This is the new MCA audit trail rule that mandates the use of accounting software having an audit trail (edit log) feature to record transactions and track all changes made to the same. In this article, we cover some key points related to this amendment.
Why is audit trail (edit log) mandatory for companies under MCA purview?
The Indian economy is making giant strides towards becoming a digital economy. We are moving quickly to a new age of transparency, efficiency, and innovation with the aim to become an economic superpower. However, issues such as fraud and corruption are still pain points within the country. Though such malpractices take place in a few companies, it is important to change how India is perceived globally.
Corruption in the internal audit and practices puts an additional burden on the country’s economy. Keeping this in mind, MCA has brought out the new amendment mandating recording the audit trails of each transaction and creating an edit log of every change made in account books with complete details.
An audit trail is an essential tool to enforce compliance across all companies. In an accounting system or ERP, the audit log keeps a record of every action. This sequential record of every transaction with time and date is an important tool in limiting corruption and other malpractices in accounting. Users are hesitant to misuse a system when they know it is recording their actions. This helps create an atmosphere of accountability among the different stakeholders.
In any malpractice comes to light, the audit log will provide factual records of the history of the transaction. These records will speak for themselves on what actually transpired rather than having to question the users and rely on their recollection of events.
The audit log will also enhance the integrity and accuracy of the accounting systems used.
Objectives of MCA audit trail notification
Key points of the latest MCA notification on mandatory audit trail are as follows:
Starting 1st April 2022, every company using accounting software to maintain its books shall only use software having an audit trail with the following features:
- Should be able to record an audit log of each and every transaction
- Create and maintain an audit log of each and every change made to the books of accounts
- Capture the details of changes (edits) such as date, time values etc and most importantly
- Ensure that no disablement of the audit trail happens.
The government aims to bring in more transparency enabling tax departments to have better control over tax evasion. They shall be able to identify manipulation (in case of any complaints) of the electronic accounting history by large companies. Thus, companies will be able to maintain books of accounts in a true and correct manner. The rule also mandates CAs to certify whether the accounting software being used is compliant or not.
Audit trail (edit log) features to look for in accounting software
Much has already been written about the requirements of companies that fall under the purview of the MCA notifications requiring the use of accounting software having an audit trail (edit log). We also need to look at what points you need to consider while making the choice. Keeping this in mind, here is a list of features to look at while choosing an accounting software:
- Timestamp: The audit trail (edit log) should maintain a record of all the actions performed in the software date-wise.
- Track all changes made: The accounting software should be able to monitor and track all the changes made in all transactions and capture every detail in the audit log. Basically, the software has to track and log all changes from the creation to alteration to deletion of every transaction.
- Cannot disable Edit log: A user should not be able to disable the audit trail (edit log). This is one of the most important things to be compliant with the MCA audit trail notification. Also, the software should retain the audit log till the validity of the records.
- Technical log and audit log: You should not confuse the audit log with the software technical logs. Software should have its own technical logs for technical issues and a separate audit trail to be compliant with the MCA notification
- Capture user details: The accounting software should record the user details from creation to alteration to deletion of records.
- Provide versioning and difference: For better business transparency, the accounting software should have the provision of versioning to provide the difference between different versions and allow for comparison of different versions to understand what all has been changed or modified.
- Sequential order: The accounting software’s audit trail (edit log) feature should capture all details and provide a chronological insight of actions performed by date and time.
Challenges and Practical Issues associated with managing at Audit Trail
There could be multiple issues that companies can possibly face while maintaining an audit trail in their systems.
The audit trail aims to track and penalise fraudulent changes in accounting entries. Here, it is important to note that it is not clear how the aspect of ‘human error’ will be treated. A simple example would be that instead of passing a receipt entry of INR 1000, a user could pass an entry of INR 10000. This is a genuine error that will need correction. But the audit trail will capture this modification and could lead to difficulties in future depending on how it is perceived by the relevant person scrutinizing the books.
Another point is related to the additional amount of data that will be generated which can be quite a bit depending upon the number of transactions of the company and the accounting software used. This could increase storage costs as well as the requirement to analyse all the new data generated. This additional data will have to be maintained for multiple years too as per regulatory requirements.
There are times when auditors need to create multiple edits in the business transactions. Eventually, this could create problems at the time of tax assessment as the audit trail records every creation, modification, and deletion in the account books.
The above are some of the grey areas that hopefully will be addressed quickly.
How to comply with the MCA Audit Trail Rule Using Tally Prime?
Starting Tally Prime Release 2.1, Tally has the edit log feature to adhere to the MCA amendment. Thus companies using Tally Prime can be compliant from day one. Tally Prime product has the following inbuilt capabilities with more to come in future releases:
- Track and log all the edits for all masters and every transaction.
- Capture the username and date details when any changes (edits) are done.
- A report to show the modified version of the various elements.
- The audit log reports have options to filter the edited transactions
- The Tally Prime Edit Log feature is designed in a way that the audit trail will be enabled at all times as per the MCA guidelines stating that The ‘Edit trail cannot be disabled’.
Audit Trail with Tally Prime
To begin with, you can download the latest Tally Prime release by clicking here for free. You only need to have a valid Tally Software Services (TSS) subscription to download Tally Prime Edit Log for free. In case your TSS has expired, you can renew it online quickly on our TallyShop. Alternatively, users can contact us or drop a comment below and we would be happy to assist. You could also simply drop us a message via WhatsApp by clicking here.
