Audit Trail

Audit Trail- The Things You Need to Know

What Is an Audit Trail?

An audit trail is a date and time-stamped, a sequential record of the history and details around a financial transaction, work event, product development phase, or financial ledger entry. Different fields will have audit trails that exist in different forms to capture their unique areas of focus, but the overarching theme and purpose of the audit trail is to track a sequence of events and actions in chronological order.

In the financial sector, the record of each transaction, whether it is income or expenditure, taxes paid, rebates received, are meticulously noted so that the figure reflected in the bottom line can be verified. It is as simple as keeping all your receipts so you can prove you paid for the product. In the Information Technology sector, the logs of computer data, even keystrokes, the IP addresses, and names of sites visited are stored so that a trail is maintained to check for compliance breaches.

What are the types of audit Trails?

It helps in Internal audit and the company can bring in an external auditor to go through the records to find anything amiss. The auditor usually also provides a report with their own analysis and suggestions about the company’s status. There is also a government audit where governments can look into a company’s records to check for mismanagement of funds or tax evasions.

Audit Trail rule (from 1st April,2023) for businesses using an accounting software:

According to the notification issued by the Ministry of Corporate Affairs (MCA), businesses that fall under the purview of MCA and use accounting software for maintaining books of accounts should have an audit trail feature. The accounting software used by such businesses should create an edit log of each and every transaction with changes made in the books of accounts. The software should capture the date details when such changes (edits) are made and ensure the edit trail cannot be disabled.

In simple words, the expectation is to maintain the edit log of every transition right from recording to tracking the changes that may take place.

Purpose and Importance of an Audit Trail?

It’s important for businesses to maintain a comprehensive and complete audit trail so that they can track back any irregularities and find process breakdowns if and when they happen.

An airtight audit trail helps companies identify internal fraud by keeping track of the different users and the actions they take with regard to a company’s data and information. Audit trail records can also help identify outside data breach issues. Malware and ransomware crimes are on the rise, and tracking an audit trail can help identify and flag moments where outsiders are looking to do harm, while simultaneously improving your company’s information security capabilities.

If those reasons aren’t compelling enough, remember that an audit trail is required for companies to be in compliance in many industries, and all publicly-traded companies require active audit trails, because — by law – they must be audited once a year at minimum by independent, third-party companies.

How does Audit Trail work?

Audit trails must have a few key details to provide comprehensive information about a transaction. To get these details at an enterprise level, however, a certain audit trail framework must be set up. Every access made to the accounts and records of the company should be tracked. Every edit made to any information must be recorded with the name of the person who did it and the time it was done. If any information was deleted, that also should be recorded.

Following are the key financial details to track as part of the audit trail:

• Any changes involved in the transaction
• The person who partook in the transaction
• The time at which the transaction took place
• The time at which the modification or edit took place

Benefits of an Audit Trail:

• Accountability-Fraud Prevention:

Audit trails help businesses have better control on what is happening inside of the company. It makes sure that everyone who is involved in transacting business has the details of their actions are being recorded. This draws a clear path to hold a user who may have undertaken a fraudulent or erroneous transaction.

Additionally, the threat of external fraud can be reduced by maintaining tight controls and a solid defensive barrier to help prevent cybersecurity breaches.

• Foolproof:

There is also the advantage of proving that the company books are clean and in a healthy state which gives a big boost in the valuation of the company as well as generating funds through loans or by raising capital.

• Stress-Free Audits:

Publicly-held companies are required to have an independent, third-party conduct an audit once a year. The stress of that audit can be significantly minimized by keeping proper records. If all transactions have an audit trail, an auditor can quickly determine if transactions are valid. Auditors being able to do their work faster means less money spent on audit fees and less time spent overall. It’s better for everyone — auditors and those being audited – to have a comprehensive and easily accessible audit trail. Remember: good audit trails make for good audits. It’s also a smart practice for companies to regularly conduct internal audits, and a step-by-step audit checklist can help to create a streamlined approach.

• Disaster Recovery:

What is an audit trail? In many ways and especially in the case of an unexpected crisis or disaster,  an audit trail is like insurance. You may not need it to run day-to-day operations, but when something terrible happens you’ll be very glad to have it. If a weather event or something else catastrophic was to happen to your business, your audit trail would be a reliable record of your business activities, costs, expenses, and income. Having a reliable audit trail can help you recover from what might otherwise be a company-killing disaster. To that end, make sure that your audit trail itself has been backed up somewhere safe and off-site so that a fire or flood doesn’t take out your business operations and all of your records.

Audit Trail (edit log) features of Tally Prime Edit Log Release 2.1

The latest release ‘TallyPrime Edit Log Release 2.1’, is enhanced with the edit log feature that caters to the amendment released by the Ministry of Corporate Affairs (MCA). Following are the features of TallyPrime edit log release:

• Track the edits for masters and every transaction
• Capture the date details and username when such changes (edits) are made
• Difference report to show the elements of the version that have been modified
• Reports are enhanced to filter the edited transactions
• Designed to ensure edit log feature will be enabled all the time to meet the MCA guidelines of “Edit trail cannot be disabled.”