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    The making of audit trail mandatory in India

    The making of audit trail mandatory in India

    The making of audit trail mandatory in India
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    By CNBCTV18.com Contributor  IST (Published)


    Fraud and corruption are the greatest obstacles to economic growth. The audit trail can act as a guard against fraudulent activities and corruption.

    New India can be closely co-related with Digital India. The nation is moving towards a new age of transparency, efficiency, and innovation for mankind, with the aim to become an economic superpower.
    Still, fraud and corruption are two common buzzwords in today’s environment that are broadly impacting the financial industry. The rising spate of corruption in the internal audit and practices has put an additional burden on the country’s economy. Therefore, the Ministry of Corporate Affairs has brought out the mandatory recording of the audit trails of each transaction and creating an edit log of every change made in account books with proper dates. As per the amendment, the audit trail feature must not be disabled in the accounting software.
    There is no denying that step-by-step sequential records of events such as purchases, sales, and expenses which can be easily traced to their source can be proven pieces of vital evidence to prevent corruption in a system. Each recorded log will hold information about what the event was, who created that event, and the date/time it was created. Essentially, it can help businesses critically examine each activity carried out within account books, prevent fraud from happening, and proffer evidence to validate the past course of actions.
    The ability of audit trail to follow records back to their origin provides numerous benefits including records for regulatory compliance, integrity and accuracy, system protection from misuse or harm, security of sensitive or essential information, and more. With such advantages, the US, Canada, and many European countries have already mandated audit log in account books with the aim of monitoring and identifying security incidents through recorded log analysis.
    The main purpose of an audit trail is to detect and prevent fraud. For example, if you have the trails of documents that validate an accounting transaction, you can prove that your transaction is valid. This way, auditors and other personnel can find and verify various activities performed within the system. This makes the auditing process quicker and easier for everyone involved. E.g. an auditor may or may not spot unusual transactions in an open book. But with an audit trail, auditors can look at supporting documents (e.g. invoice, e-way bill) and determine whether or not the transaction is valid.
    How an audit trail can help auditors?
    Missing/lost transactions is a usual phenomenon if your target market is broad. But having an audit trail can help you sort this out. With an audit trail, you can track down the transaction and find out every related information. Furthermore, an audit trail can be significantly useful in recovering damaged or missing information. It can help you recreate your business’s transactions for the period you want to recover your transactions. For this, you need to back up the data. In that case, storage on the cloud is the best option to ensure that trails won’t be destroyed even during a disaster.
    An audit trail is a vital tool for identifying suspicious behavior or actions. Using the audit trail real-time monitoring option, auditors can identify problems like system implementation issues, operational issues, unusual or suspicious activities, or system and operator errors. This pretty much helps to justify future actions and alleviate difficulties/risks in business.
    Practical issues associated with audit trail
    There could be so many problems that businesses could face while managing/maintaining audit trails in their system. Among those, data maintenance could be one that can create a headache as the daily logs, collected and aggregated, could be hundreds to thousands as per the organisations’ size. Also, there is a disagreement on how long it is necessary to keep the recorded data. In this case, businesses need mass storage that could increase the storage costs.
    There are times when auditors need to create multiple logs and multiple edits in the business transactions. Eventually, this could go large and create problems at the time of tax assessment as the audit trail records every creation, modification, edits, and deletion in the account book. In addition, the implementation of an audit trail in the business needs an upgraded system, standard accounting methods, and skilled workers to understand and work with new rules. This can put an additional financial burden on companies.
    The impact of audit trail on economy
    Fraud and corruption are the greatest obstacles to economic growth. The audit trail can act as a guard against fraudulent activities and corruption. With the recorded logs, it can bring more transparency to the system, thereby leading to more tax collection and overall economic growth.
    In this GST regime, the audit trail will be an important instrument to prevent or curtail fake invoices. Fake invoice is one of the key challenges in the GST regime. An audit trail will eventually eliminate the possibility of fake invoices. By eliminating fake invoices, will create a direct positive impact on GST collection.
    Maintaining audit trails means keeping recorded logs of every transaction and other vital data. This data can act as the financial history of businesses or their members, which can be shared with banks to avail loans and other essential financial services. A good financial history helps banks approve different types of loans or other financial services faster.
    —The author, Kapil Rana, is Founder & Chairman, HostBooks Ltd. The views expressed in the article are the author's own
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