 Audit Trail is also known as Audit log.

 Audit trails refers to step by step recording of entries which provide

evidence of documented history of financial transaction.
 Audit trail is the collection of document that help to prove that your
financial statements are accurate.
 The purpose of audit trail is to provide a complete and accurate
record of all activities in the system, which can be used to trace the
source or any errors or problems that may arise.
 Audit trail is applicable from 1st April 2023 on Public Company,
Private company, One Person Company, Nidhi Company, Section 8
company and any other company.
 Audit trail is important to verify and track all types of transactions,
work processes, accounting details etc.
 Audit trail is required for reconciliation, budget planning, risk
management, tax and other audit compliances.
 Audit trail is important because it helps in maintaining a detailed
record of all financial activities.
 A comprehensive audit trail with proper internal control helps to
identify and reduce internal risk.
 Any changes made to financial data at later date is recorded in Audit
log which is maintained by the system.
 It also prevents modification of data after data has been checked &
approved by an authorized person.
 Audit trail have key information about a transaction which is stored
in a back office.
 Every access made to the accounts and records of the company will
be tracked.
 Every modification made to any information/data has been recorded
with the name of the person who did it and the time when it was
done?

What is recorded in an Audit Trail?

 The Date, Time and description of transaction.
 The amount of the transaction.
 The Party of the transaction
 The mode of Payment.
 The recording of the transaction in the books of accounts.
 The posting of the transaction in the ledger.
 It helps in maintaining well- functioning organization.
 Encourages users accountability and compliance.
 An Audit trail helps businesses to detect unauthorized use, error or
fraud.
 Audit trail helps in evaluate damages by examining audit trail records.
 Audit trail helps in identify unauthorized access.
 Through real time monitoring, audit logs identify problems that
indicate operational issues, unusual or suspicious activities or system
errors.
 When proper record is maintained, it is easy to detect inconsistency.
 Maintenance of Audit trail is the responsibility of the management
 The accounting software (i.e. Tally Prime, Zoho, Busy, etc.) that the
company is using have the capability to track each and every change
made in entries.
 It has ability to capture detailed and chronological insight actions
performed by date and time.
 Books must be maintain on day to day basis.
 Entries of all expenses including petty cash expenses should be made on
daily basis.
 Entry once made should not be deleted/altered without a valid reason. It
is advised that proper authorization must be given to appropriate person
who is responsible for the same.
 Entries should be passed on real time basis.
 Audit trail should not be tempered/disabled at any point of time during
the year.
 Audit trail information should be stored at a secured location and
backed up regularly.
 Review audit logs on a scheduled basis in order to mitigate risk.
 As per Section 128(5) of Companies Act, 2013, which requires books
of accounts to be preserved by companies for a minimum period of
8 years, the company would need to retain audit trail for a minimum
period of 8 years from the date of applicability of Accounting Rules
(i.e., 1st April, 2023 onwards).

Consequences of non-maintenance of
Audit Trail:
 The penalty for non-compliance with the audit trail requirements
under the Companies Act 2013 can range from INR 25,000 to INR 5
lakh, depending on the nature and extent of the violation.
 Additionally, the company may be required to rectify any
deficiencies in its financial reporting and may face legal
consequences if non- compliance is deemed to be intentional or
fraudulent
 Rule 11(g) casts responsibility on the Auditors in terms of reporting
on Audit trail by making specific assertion in the Audit report under
section “Report on Other Legal and Regulatory Requirements”.
 Whether the Audit trail feature is configurable (i.e., if it can be
disabled or tempered why)?
 In Addition to requiring Auditor comment on whether company is
using an accounting software which has feature of recording audit
trail, the Auditor is expected to verify the following Aspects:
 Whether the Audit Trail feature is operated or enabled throughout
the year?
 Whether the Audit trail has been preserved as per the statutory
requirements for record retention (i.e. minimum 8 years)?
However, Rule 11(g) Requires the Auditor to comment as to whether
the company has used such accounting software for maintaining its
books of accounts which has feature of recording audit trail facility
and the same has been operated throughout the year for all
transaction recorded in the software and the audit trail feature has not
tempered.
Thank you

By Swati Chaurasiya