What is the new MCA audit trail notification? The Ministry of Corporate Affairs (MCA), Government of India recently put out an amendment notification against the principal Gazette Notification No. GSR 205 (E) dated 24th March 2021 – Amendment to Rule 3(1) of Companies (Accounts) Rules 2014 requiring all private and public limited companies to maintain an audit trail in their accounting software. This new amendment is coming into force starting 1st April 2022. Before we understand its implications, we need to know what an audit trail is and its benefits.
What is an Audit Trail?
As per Wikipedia, an audit trail (also called an edit log or audit log) is a security-relevant chronological record, set of records, and/or destination and source of records that provide documentary evidence of the sequence of activities that have affected at any time a specific operation, procedure, event, or device. Typically, the process of creating an audit trail runs in a privileged mode, so it can access and supervise all actions of all users, i.e., a regular user is unable to stop or alter it.
With reference to accounting software, an audit trail is a date and time-stamped detailed, chronological electronic record to track and trace all accounting records. It is a business best practice for any thorough and organized accounting department. It is now also a regulatory requirement in India for all private and public limited companies starting 1st April 2022 as per the audit trail notification mentioned above.
How does an Audit Trail work?
An audit trail is a complete record of the events that have occurred during the execution of a particular transaction. It works by tracking each and every modification made to the accounts of the company. It records all the edits made to any part of the accounting books with the name of the person who did it along with the date and time of the change. The software also keeps track of any deleted information. All details are available for future review. Some details tracked include:
- The date and time of initially recording the transaction.
- Any changes made to the transaction.
- The date and time at which the changes took place
- Which user made the changes
The easiest example of a simple audit trail is a supermarket transaction receipt. You walk in, buy something and then walk out with a record of the transaction which contains all details including the goods you purchased with the exact time along with details of the location where the transaction took place.
What is the use of an Audit Trail?
Most mid-size and larger companies as well as publicly traded companies get regularly audited by independent, third-party auditors. Therefore, they anyways use an audit trail as a best business practice even if it is not mandatory. It helps them maintain a comprehensive and complete log to backtrack any irregularities or find process breakdowns in case they occur. Airtight software helps them identify fraud by tracking the actions of the users and regarding the company’s data and information.
Importance of Audit Trail for Compliance
As per the MCA audit trail notification, starting 1st April 2022 all private and public limited companies in India need to use accounting software with audit trails as part of regulatory compliances. Well-maintained electronic records help maintain an accurate audit trail. They control the record-keeping activity and protect user access and versioning, with tracking as required.
Example
Accounting software is a good example of an audit trail. After you enter a transaction in the software, it maintains a detailed record of it. The software tracks any subsequent edits such as a change in the amount, or change in the ledgers involved, along with the name of the user who made the changes. It also logs the date and time of the changes. Even if a user deletes a transaction, the software will log that too. An authorized person can therefore trace every transaction from its entry to deletion. This eliminates the possibility of someone making an untraceable fraudulent change.
What Are the Benefits?
Regulatory compliance and security are the top two benefits of maintaining an audit trail.
Fraud Prevention: Companies have better control over what happens inside the company with the use of audit trails. Just the presence of this trail deters many potential internal frauds.
Stress-Free Audits: Companies undergo audits at least once a year. Proper and detailed records significantly minimize the stress of such audits. If the transactions have audit trails, auditors can quickly determine if the transactions are legitimate. Quicker audits mean less time spent overall. It’s a win-win situation for everyone – auditors as well as those being audited to have comprehensive and easily accessible audit trails.
Improved Efficiency: It is easy to examine a comprehensive audit trail, thus saving a business, time and increasing efficiency. With the help of this software, you can find business information that’s buried deep in your books and not easily seen from the surface. It is one of the best tools for verifying and discovering missing information in the company’s financial data.
Fulfilling Compliance Requirements: Maintaining an audits trail is mandatory in India for all companies – private or public limited. Thus, having an audit trail will help you in fulfilling your company’s compliance needs and avoid potential fines due to non-compliance
Intrusion Detection: The software will log the activity in case some user does something, he isn’t authorized to do. The management will get to know that a user has access to information they should be seeing.
Audit Trail with Tally Prime
Starting with release 2.1, Tally Prime is fully compliant with the MCA audit trail notification requirements. You only need to have a valid Tally Software Services (TSS) subscription to download Tally Prime Edit Log for free. If 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.
