Audit Trail in Accounting Software

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Accounting or book-keeping is undoubtedly one of the critical functions of any business. The history of accounting systems dates back to more than 7000 years when accounting records were merely stone carvings or writings on a wall. We had come a long way from then, where the accounting records were maintained in hard-bound ledger books using the double-entry accounting system. But, the 21st century digital revolution has transformed the accounting process completely with the advent of accounting software.

Audit was prevalent when the accounting records were manually maintained, and the concept hasn't changed with the digitization of accounting records. However, the challenge is to perform audit through the computer system. Hence, the requirement of audit trail in accounting software.

The Ministry of Corporate Affairs in one of its recent amendment notifications (Gazette notification no. GSR 205(E) dated 24th March 2021) stated that for companies maintaining their books of accounts using accounting software, should use only such accounting software which has the feature of recording audit trail for each and every transaction w.e.f. 1st April 2021.

What is Audit Trail?

Audit trails are records (manual or electronic) that chronologically catalogue events to provide supporting documentation used to establish authentication and integrity of a transaction.

Many critical computer systems keep a record of the activities performed by its users like -

• At what time the user logged in to the system?
• Which entries were made by the user and at what time?
• Which entries were modified by the user and at what time?
• Which entries were approved by the user and at what time?
• At what time the user logged out of the system?
• No. of failed login attempts by the user?

Such record of system activities is called system log. These logs help in fixing the accountability to individual users for the activities performed by them in the computer system. Also, the system auditors use these logs to reconstruct and examine the sequence of events occurring in a computer system to identify any unauthorised change or access. Hence, in a IT environment, such logs form the audit trail.

As per the amendments by MCA, the minimum requirements in an accounting software in respect of audit trail are -

• Audit trail should be for each and every transaction.
• Edit log should be generated for each change made in book of accounts.
• The log should contain date stamp for each change.
• Audit trail cannot be disabled.