Audit Trial Provisions and Applicability

What is Audit Trial:

An audit Trial is a unique system that traces the detailed transactions relating to any item in an accounting record. It’s a record of changes that have been made to a data base or a file. It includes various types of transactions such as financial transactions, operational transactions, and administrative transactions. It will provide information about nature of transaction, person who recorded the transaction and when it was recorded.

 Purpose and Importance of Audit Trial:

Audit Trial works as record keeper and evidence of certain transactions, procedures and helps in reduction of frauds and significant errors. Audit Trial ultimately improve internal control and data security.

Audit Trial is important because it is used in verification and validation of financial transactions by tracking specific user activities, source of an event, who created or modified a record that helps businesses to detect unauthorized usage and hence reduces chances errors and fraud.

 Applicability of Audit Trial:

• All Private Limited and Public Limited Companies
• One Person Company
• Government and State Government Company
• NPO Organizations
• Nidhi Companies

 Audit Trial Effective From 1^st April 2023:

As per Companies (Accounts) Fourth Amendment Rules,2022, every company with effect from 1^st April,2023 which uses accounting software for maintaining books of accounts shall use only such accounting software which has a feature of :-

• recording audit trial of each and every transaction
• creating an edit log of every modification made to the books of accounts
• recording the date when such modification was made
• ensuring that audit trial cannot be disabled.

Further, it states that:

• Books of accounts always remain accessible in India.
• There should be proper system of storage, retrieval, display or printout of electronic records as Board may deem fits and such records shall not be disposed off unless permitted by law.
• The backup of books of account kept in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a daily basis.

Audit Trial Feature Requisites in Accounting Software:

• The audit log should be preserved until the accounting records are no longer usable and valid.
• A timeline stamp must be included in the accounting program.
• The audit trail should keep track of all operations performed using the software on a date-by-date basis,
• The software must track all the transactional changes.
• The accounting software should track and monitor all changes that occur in a transaction, which should then be reported in the audit log (from the establishment of the transaction to its modification and deletion).
• The accounting software should record login information from creation to modification to deletion.
• The software should be able to differentiate between a technical log and an audit log.