Audit Trail (Edit Log) Rule in Accounting Software from 1st April,2022

Tally Solutions |Updated on: February 25, 2022

• Background of Audit Trail Rule
• Audit Trail Rule’s Challenges and Concerns
• Present scenario and way forward of Audit Trail Rule

The Ministry of Corporate Affairs (MCA) recently issued an amendment notification against the principal Gazette Notification No. GSR 205 (E) dated 24^th March 2021 - Amendment to Rule 3(1) of Companies (Accounts) Rules 2014 which seeks to bring the audit trail rule in accounting software.

According to the amendment, the new audit trail rule in accounting software will now be implemented from 1^st April,2022 which was originally planned for the 2021. This is a welcome move for the businesses, chartered accountants, and software providers as it provides ample time to understand the requirement and implement it.

Background of audit trail rule

According to the notification issued on 24^th March, 2021, all the businesses who are using accounting software for maintaining books of accounts should have an audit trail feature comprising of the following:

• Create edit log of each and every transaction with changes made in the books of account
• Capture the date details when such changes (edits) are made,
• Software to ensure that the edit trail cannot be disabled.

Further, the rules state the edit log feature should have been operated throughout the year for all the transactions recorded in the software, the edit log feature has not been tampered with, and the edit log feature has been preserved by the company.

Audit trail rule's challenges and concerns

These amendments reflect a laudable intent of the government to bring in more transparency and improve compliance.  Although at a conceptual and regulatory level, the requirement of audit trail is very important and apt, there were a few concerns that many associations, trade and industry bodies observed and raised with the ministry. These concerns emanated with respect to the operational areas of businesses and were highlighted to the ministry via representations made by these bodies:

• While the audit trail aims to track, penalize and discourage fraudulent changes in accounting entries, it is important to note that there is an aspect of ‘human error’ also involved in this subject. One such example, among the many, is, ‘while making a sales entry of INR 1990, if the user by mistake types INR 1099, they will need to change the same afterwards to reflect the on-ground reality.’ This, however, will also get recorded in the audit trail and may lead to unnecessary difficulties for both the auditor and the business in question. Any model which relies on tax officers’ intervention and increases the burden on businesses is likely to fail.
  
  
• The law mandates that the business use a software which is audit trail compliant, the expectation from the Business Owners as well as the Chartered Accountants is that they endorse and undertake to the government that the businesses are audit trail compliant. However, with the current ambiguity in the exact description and scope of Audit Trail, that undertaking would be difficult to give. 

The regulation needs to address these in the right manner so that businesses or CA are not affected or penalized for things like lack of technical expertise, lack of clear understanding, etc., Also, business owner/ auditor cannot be expected to be technologically enabled to detect hacking or tampering of the application.

Present scenario and way forward of audit trail rule

Post the deferment of Audit Trail to 1^st April, 2022, many trade associations along with software service providers have been working with the ministry to bring out a detailed version of the amendment. Tally has been driving many such discussions as the leading software product developer of the country.

Tally has been constantly interacting with the ministry, the trade associations and CA federation to collate and debrief the concerning aspects of the amendment. Thus far the ambiguous elements have slowly been defined, and market concerns and operational issues are being handled to meet the expectations of both business owners and the department.

The outcome from of these interactions can be seen in the market readiness for audit trail. Unlike 2021, now the business world and CA community are better placed to implement and manage Audit Trail in their accounting software.

The solutions designers from Tally, who were active participants in these dialogues have used their rich experience to design and shape TallyPrime to meet the requirements necessary for a successful implementation of edit log functionality. Being the mass market product that TallyPrime is, it should be flexible enough to meet the requirements of varied business segments, across various levels, and meet the security and speed parameters that is always expected from Tally.

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 About Audit Trail

Audit Trail – Meaning & Examples, Why do We Need an Audit Trail (Edit Log) for Businesses, 5 Features to Look in Audit Trail (Edit Log) Accounting Software, Audit Trail – Edit Log the New Statutory Watch Guard for Businesses, How Audit Trail (Edit log) can Lead to Increased Compliance and Transparency

Audit Trail Rule

Business Impact of Audit Trail (Edit Log) Rule, Key Requirements of the Audit Trail (Edit Log) Rule Issued by MCA, Audit Trail Rule (Edit Log) Applicability – Businesses who Should Follow the Rule from April 2022, How to Prepare your Business for Audit Trail (Edit Log) Rule