To bring in more transparency in financial transactions, the Ministry of Corporate Affairs made it mandatory for companies to maintain their account book using only such accounting software that has the feature of recording audit trails of each and every transaction.

As per the amendment, creating an edit log of each and every change made in account books with proper dates is mandatory. The rule also states that the audit trail feature must not be disabled in the accounting software company uses. The new regime will come into force from April 1, 2022.

Countries such as the US, Canada, Europe and few others have made audit trail or as it is called audit log there mandatory.

Be it for compliance, internal control of finance, or user activity monitoring, companies are leveraging the audit log feature to boost overall business productivity. This is an feature which gives sense of comfort to the investors and lenders to the business. Companies/industries across the world are using the audit log feature to meet local, state, or federal guidelines of the respective countries and to maintain the digital evidence of their entire financial records.

India too has moved on the same line and made the audit trail mandatory for companies. The purpose is evident – preventing tampering in account books and bringing transparency in the recording of accounting entries. Taking a look at the data, 80-85 per cent of 1.5 million companies, especially SMEs, which were not using an audit trail feature embedded in their accounting software are on their way to adopting the new system.

Audit trail – key to growth

An audit trail is an electronic-based record that consists of documented history of chronic events, transactions, actions, or related activities, acting as supported documents to authenticate operational and security activities. In simple words, it is a complete chronological record of everything that takes place in the Document Management System (DMS) within an organisation.

Audit trail helps organisations maintain the visibility of the information, create a recorded system to review security and operational activities, improve the feasibility of the storage system, and secure authorised access to it. Technically, it enables business owners to trace transactions or other financial data from the general ledger to the source documents and check out the full transaction processing, thereby enabling them to keep an eye on financial information and use recorded documents for relevant purposes.

Audit trails need to remain visible in cloud-based e-invoicing and accounting software. Thus, with recorded invoice history, a business owner can track when an invoice is sent, viewed, and paid for purchase anytime and anywhere. Also, it allows users to recover the elusive data quickly and easily.

Cloud-based audit-trail-embedded accounting software has the ability to log user activities. Thus, it can help enterprises record their employee’s activities within the organisation. Based on their activities, proprietors can spot the negative sides of their employees and suggest improvements. Moreover, it can prevent improper use of information, undetected modifications, and unauthorised use of the system.

While an audit trail has the ability to track account information, trade details, and other financial data, it helps users easily identify the breach in the system and fraudulent activities. It also helps users detect intrusions in real-time and retrieve reliable documents to review the action. The audit trail also provides complete protection of intellectual property, personal information, and financial records.

Audit-trail-embedded accounting software has an automated Auditing and Monitoring feature that helps auditors recognise known and unknown errors in the system in real-time. An automated audit log helps users identify implementation and operational issues along with unusual and suspicious activities. So, if a business owner wants to keep a system or application under observation, automated auditing and monitoring could help him/her detect the problems in real-time and rectify the errors.

An audit trail can help an organisation predict DMS failures or vulnerabilities at various points. Based on the predictions, companies can better analyse their financial loose ends, mitigate financial risk, and empower the appropriate actions to drive the business forward. Companies can also use the audit trail for reconciliation, historical reports, future budget planning, tax or other audit compliance, and fraudulent investigation.

The implementation of the audit trail is going to boost the countries’ economy by means of transparency in the system, business owners by means of facilitating the ease of doing businesses, and the honest taxpayers by means of facilitating financial help based on their financial health. Thus, with various advantages, the audit trail can be one of the pillars of India’s economic growth in the coming years.

The writer is Founder & Chairman, HostBooks Ltd.

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