Audit Trail
An audit trail is a step-by-step record by which accounting, trade details, or other financial data can be traced to its source
An auditor can trace the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.
Audit trails are used to verify and track many types of transactions including accounting transactions and trades in brokerage accounts.
An audit trail is most often utilized when the accuracy of an item needs to be verified, such as in the case of an audit. Audit trails can be useful tools when determining the validity of an accounting entry, source of funds, or trade.
In the terms of IT
Audit Trail in simple words means Activity Log.
All the changes happening in a Software has to create an activity log file which gives complete details of :
- Who made the changes?
- When were the changes made?
- What were the changes?
- Applicability?
- Can be disabled?
In Short, we can Say
An audit trail is a sequential record detailing the history and events related to a specific transaction or ledger entry.
Maintaining an audit trail is often a regulatory requirement in many financial domains, as well as an accounting best practice.
Order audit trails provide evidence and information for regulators in cases of suspected fraud or illegal financial activity.
- Understanding Audit Trail
Audit trails are crucial when it comes to validating and verifying the source of a particular transaction.
Auditors can make the use of audit trails for various purposes such as validating the earnings per share, verifying net earnings, and revenue of the company. In case an audit trail learns about missing documents during the process, it means that the company does not adhere to the established accounting procedures.
Depending on the company, the type of the given transaction, and the number of steps involved, the audit trail can vary from simple to a much-complicated process.
Audit trails can be used in accounting when an auditor or examiner needs to verify figures such as revenue, net earnings, or earnings per share (EPS). Transactions that are involved in computing a company’s revenue, net earnings or earnings per share are reviewed and the calculations may be redone if figures were incorrectly classified.
- How Audit Trails Are Used
Audit trails, or rather the process of following an audit trail, are found in many different areas of finance. When buying a home, for example, a mortgage lender may utilize an audit trail to determine the source of funds for a down payment. They may ask to see a bank statement showing the deposit of funds into the account and ask for additional verification regarding the source of the deposit.
- Why it is important to know about Audit Trail
The MCA has mandated companies to compulsorily have audit trails and transaction logs in their accounting software from April with auditors tasked with the responsibility to review and report the controls. Every company which uses accounting software shall use only such systems that possess a feature of a recording audit trail for transactions and are able to create logs of changes made to the books of account and “ensuring that the audit trail cannot be disabled”, an MCA notification on 24th of March 2021 said.
While this helps mitigate unrecorded transactions and curb frauds, it is a huge compliance burden on companies to implement new systems and retrain staff, companies, and auditors
There should be a turnover limit instead of a blanket rule, they added, arguing that the move will impact smaller companies. Government sources, however, dismissed the complaint, saying the move was necessary to check frauds as there were several instances of fudging of books.
- Accounting Software with Audit Trail Feature
- Zoho Books
- Quick Books
- Tally
- Dynamics AX
- SAP B1
AUDIT TRAIL IN ZOHO BOOKS
Zoho Books maintain an “Activity Log” and cannot be disabled. Following are the details available :
- Names of both users – created &modified
- Date & time
- Multiple versions of same Transactions
- Comparison between 2 versions
- Old Values V/s New Values
Recently Prashant Ganti, head of tax, accounting, and payroll products at Zoho, said while the ideal expectation is for companies to have such software, it is a big task for those who don’t. “We have been evangelizing this for a long time,” he said. Zoho Books, Zoho’s financial software, has the audit trail feature.
AUDIT TRAIL IN QUICK BOOKS
Quick Books maintain ”Audit Logs” and this cannot be disabled. Following Details are available :
- Date of Alteration of any Changes
- Name of the User
- Category of Change
- Vendor / Customer Data altered
- Unaltered Voucher details with Date and Amount
AUDIT TRAIL IN TALLY
Tally maintains ”Altered/Entered by” details only. Following details are available :
Last user who altered/opened the voucher. So there are no other details as to what was edited when it was edited.
Hence, by default, the tally doesn’t comply with the MCA Notification
Alternatively, TDL Add-ons are available to fulfill this Audit Trail Requirement, refer to Snapshot
Tally Solutions, with a customer base of two million and the largest market share of around 75% in this segment, has an audit trail function but currently, there is also a provision where users can disable it. “This is likely to create huge friction in ease of doing business come April 1. We are working to figure out how to help our customers and efforts to save the company come second,” Bharat Goenka, vice chairman, Tally Solutions, “While we currently have the audit trail capability, we are seeking clarifications from the ministry to ensure we advise our customers in the right manner,” he added.