What is the concept of an Audit Trail?

An Audit Trail is a systematic record to be featured in accounting software which provide the details of every transaction being entered and helps to trace the source of accounting and changes made therein and by who. It helps businesses to find out and evaluate financial performances and serve as authentic proof for stakeholders and helps to validate the information on financial statements.

What is the objective of an Audit Trail?

An Audit Trail acts as fraud detector and helps to prevent fraud, errors and other misinformation. It helps to maintain the legitimacy of transactions.

When does Audit Trail features become mandatory to be maintained in accounting software being used by companies?

MCA has introduced vide its notifications dated 24th March 2021, that w.e.f 01.04.2021, every company should use accounting software which has feature
a. recording audit trail of each and every transactions and
b. creating an edit log of each change made in books of accounts along with the date when such changes were made and
c. ensuring that the audit trail cannot be disabled.
However, the above applicability is postponed by one year ie. 01.04.2022 by amending the same vide Companies (Accounts) Second Amendment Rules, 2021.
Yet gain, the MCA has deferred the applicability by further one more year i.e 01.04.2023 by amendment.
Hence, the provision of audit trail is applicable w.e.f.01.04.2023

Is it applicable to all companies?

It is applicable to all Public and Private limited company including one person company. But it is not applicable to LLP.

What is responsibility of the Auditor?

An Auditor has responsibility to comment on
        a. If all transactions entered is being recorded in accounting software or not
        b. if any attempt to tamper audit trail feature or not
        c. If the Company is preserving the audit trail record for the prescribed limit or not.
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