Why do We Need an Audit Trail for Businesses?

Why audit trail is required
| Updated on: January 17, 2022

Why Audit Trail?

For any business to protect itself against fraud or future mismanagement, there needs to be a meticulous record kept of the financial and operational activities done. When a point of contention arises, the audit trail can immediately be referred to and the facts verified. This helps not only the company itself not be cheated but also to prove that it has everything above board in case of an external or governmental audit.

Auditing vs. Logging

Auditing and logging are terms that are often confused with each other and practically used interchangeably. There is a subtle difference between the two, however. Let us take a look at the differences.

Auditing

Logging

Auditing follows the actions recorded in the log to determine that no deviation from the expected outcome has occurred. In case of a problem, it can trace back the logs to determine the source which led to the problem.

Logging is the recording of every activity done by the user in sequence. This also includes the effects of the activity performed by the user.

 

Auditing refers to the activities on the user level, such as changes in data made by a user being recorded against their name and the time it was made. This is specifically actions taken by an end-user which are causing changes in the records

Logging also mostly involves a record of the activities that the system itself does at the back end while completing user actions

Audit trail rule from 1st April,2022

All the businesses that fall under the purview of MCA  and are using accounting software for maintaining books of accounts should have an audit trail feature comprising of the following:

  • Create an edit log of each change made in the books of account,
  • Capture the date details when such changes (edits) are made,
  • Software to ensure that the edit log 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. 

5 Features to Evaluate Audit Trail Accounting Software   Audit Trail – Everything You Need to Know About Audit Trail Meaning & Examples

Types of audit trail activities and contents of an audit trail record

An audit trail must lead the auditor back from the point of discrepancy to the creation of the record. This includes activities such as changes made by the users to the database, attempts to access data, activities by the administrator or user.

The main contents which are relevant to an audit trail are the actual events that happened, the trigger that caused that event and the timing of the event. The depth to which the audit trail will go depends on the granularity of the data that is recorded.

How long do you maintain an audit log?

Logging is a time-consuming and sometimes expensive process. It should be considered as insurance in case something goes wrong. As long as certain records are valid and the company requires to keep them, the audit logs should be maintained for the duration of the validity of the records. In an ideal scenario, audit logs should be maintained continuously and endlessly.

Types of industries that rely on audit trails

Audit trails are used in some capacity in almost every industry. May it be records of financial transactions, logging keystrokes and user activity within a server or a system, the websites visited on a browser, the IP addresses pinged and so on. All types of industries have different ways of tracking their activities to ensure they have a record. Even educational institutions need to keep records of the students that graduate through them for future reference, clinical research needs to log the progression of results to determine if progress is being made.

A commonality between all businesses, regardless of their nature is keeping track of the financial transactions which ultimately reflect as a profit or loss on the bottom line. For this, all of them must keep a meticulous record of transactions related to assets, liabilities, cash receipts, payments etc. Audit trail as a tool plays a key role in tracking transaction events such as edits, deletion etc. and helps in keeping the books clean.

Importance of an audit trail

An audit trail itself is the fundamental record that can be leveraged in different ways depending on the situation. A company can use it to protect itself from fraud and other liabilities. It can prove that it has not done anything illegal to stay clear of legal trouble. It can also show investors and consumers that it is going strong and raise its profile in the market. It can also assess the risks it can afford to take by having a clear picture of their books.

Who uses an audit trail?

In a computerized world, the audit trail is mostly monitored by the IT department, which traces any contact with sensitive data from any user, human or system generated. The user’s information will become part of the audit trail. In a broader sense, especially log related to books of accounts is used by the auditor, business owner or any person in the business who is responsible to find the reason that caused a discrepancy, if any.

Coming Soon

TallyPrime Edit Log release to handle the edit log requirements issued by the Ministry of Corporate Affairs (MCA). The upcoming product release is built with the following capabilities:

  • 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.’

Read more on audit trail:

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