Audit Trail Software in Accounting | Why MCA Mandated Audit Trail?

Audit Trail Software in Accounting | Why MCA Mandated Audit Trail?

Audit Trail Software in Accounting and Why MCA Mandated it?

Audit trail became a buzzword when the Ministry of Corporate Affairs (MCA) mandated companies to have an audit trail feature in accounting software. The concept was introduced by the MCA vide notification dated 24th March 2021. As per the said notification, it became mandatory for all the companies that use accounting software to maintain their books of accounts to use only such software that contained the audit trail feature. While this requirement was to be made effective from 1st April 2021, audit trail software applicability was deferred to the financial year commencing from 1st April 2023.

What is Audit Trail?

In simpler terms, an audit trail traces all the transactions associated with any item in the books of accounts. In essence, it maintains a record of all the step-by-step events associated with any item or transaction. Any action taken by the users like creation, modification, deletion of data, files and entries or any system updates is recorded by the audit trail feature. In short, it can be said that the audit trail software in accounting provide an accurate and complete record of any activity that takes place in the system and helps in tracking the origination. Let’s understand what are the benefits of audit trail and why is it important.

Importance of Audit Trail Software in Accounting

The audit trail in accounting software assumes importance for the following reasons:

  1. Detecting Errors and Frauds: An audit trail is an invaluable feature for detecting errors, frauds or any other irregularity with the books of accounts. It assumes great importance to identify any tampering with the books of accounts as it keeps a record of any changes, authorised or unauthorised, as well as any suspicious activity. 
  2. Ensuring Integrity of Data: Accounting software with audit trail feature helps maintain the integrity of the financial data. It provides a detailed record from the origination of the transaction to any subsequent changes to ensure that you have all the necessary information pertaining to your transaction.
  3. Enhancing Accountability and Transparency: Users can rely on the financial data generated from the accounting software with audit trail feature. It is an essential feature for auditors as well to track any changes in the accounting records. Thus, it is key for enhancing accountability and transparency. 
  4. Facilitates Internal Control: For an organisation to ensure transparency and avoid any irregularity or fraudulent activities inside the organisation, internal control becomes paramount. Audit trail becomes an important component of any organisation’s internal control as they provide a comprehensive view of all the financial activities and records. Thus, it helps in strengthening the overall financial management process. 
  5. Security: An audit trail software is important to identify any security breaches or attempts made by any person for unauthorised access to data. It allows you to monitor any activity within the system to respond to any suspicious behaviour. 
  6. Reconstruction of Events: In case an investigation or audit is triggered, then it becomes important to trace any transaction, item or event from its point of origination. Such information becomes important to help in problem detection by identifying the root cause. As an audit trail is able to keep a record of the entire transaction from its point of origination, therefore, it becomes important for the reconstruction of events. 
  7. Compliance: As stated earlier, the Ministry of Corporate Affairs made it mandatory for all companies using accounting software to use one with an audit trail feature. Therefore, using such software ensures that companies stay compliant with the statutory requirements. 

The Ideal Audit Trail Software

An ideal audit trail software allows businesses to record chronologically the sequence of events to outline the events and who was involved in the same. Therefore, it shall encompass the following features:

  1. User Identification: The audit trail should assist individuals and businesses to identify the users who are originating or making changes to the transactions or the data. It can store user IDs, employee IDs or any other identification information to know the source of origination, modification or elimination of the information. 
  2. Search and Retrieve: The audit trail feature should be well equipped with the search and retrieve capability to facilitate any investigation, auditing or reporting. It should allow querying, filtering and sorting across various parameters like the user, time range, events etc.
  3. Timestamps: Every entry in the audit trail should be accompanied by a timestamp. It should indicate the date and time of the event. This allows you to chronologically track the sequence of the events.
  4. Alerts: The audit trail should be monitored regularly and automatic alerts should be enabled to get quick information about any suspicious activity that takes place in the organisation or with the financial data.

Who Will Benefit from Audit Trail Software?

The audit trail in accounting software is beneficial to the following key stakeholders:

  1. The Organisation: The organisation is able to keep a record of what is happening within the organisation, detect any irregularity, trace the origination and held the people accountable for their actions. Further, they are able to comply with the statutory obligation of maintaining the audit trail feature.
  2. The Auditors: The audit trail allows auditors to ensure accurate reporting and give a true and fair view of the business. 
  3. The Government: The government and the investigative agencies get a clear picture of what’s actually happening within the organisation. This is especially beneficial in case of any investigation whereby it becomes necessary to get to the root cause and identify the responsible person.
  4. The Stakeholders: The audit trail software enhances the transparency and accountability of the financial records and statements. This helps further enhance the stakeholder’s trust and confidence.

In a Nutshell

Audit trail has become an important component of accounting software. Mostly all the accounting softwares are now equipped with the audit trail feature due to its multi-fold advantages. From enhancing transparency to ensuring compliance, an audit trail has become more of a necessity than a choice for businesses. For more such useful information, reach out to the ASC Group.


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