Suggested Reporting on Audit Trail for Different Scenarios

Suggested Reporting on Audit Trail for Different Scenarios

An audit trail is a chronological record of activities, events, or transactions that can be used to determine the origin of financial data, accounting records, or other information. Audit trails are commonly used in accounting and information systems to monitor changes and assure compliance.

Audit trails may comprise accounting transactions, trades in brokerage accounts, project data, user activity, and transaction-related communication.

Accounting software can assist you manage audit trails, especially when transactions need to be modified.

Suggested Reporting Formats in relation to Audit Trail for F/Y 2023-24 – Prepared By CA NITIN KANWAR (Seven Scenarios)

Scenario 1:-Suggested Reporting for companies where Accounting Software does not have the feature of an Audit trail

• “The company has not used accounting software with an audit trail (edit log) feature throughout the year as required under Rule 11(g) of the Companies(Audit and Auditors) Rules, 2014. The company being a small company with having limited number of transactions during the year, its management experienced constraints on selecting the appropriate software vendor in delivering and installing the required updates, which prevented the immediate implementation of audit trailcompliant software. However, the company’s current accounting software is fully capable of ensuring that the books of account and other relevant records are retained completely in their original format or in a format that accurately presents the information. The software ensures that the data remains complete and unaltered, thereby maintaining the integrity and reliability of the records.
• The management is aware of the importance of using audit trail-compliant software and is actively exploring options to upgrade the current system to include an audit trail feature by [specific date], as part of its commitment to full compliance with statutory requirements.”

Scenario 2:- Suggested Reporting for companies where book-keeping is outsourced

• “During our audit, it was observed that the company utilizes third-party accounting services for the preparation of its books of account. Consequently, we were unable to directly verify the functionality and implementation of the audit trail feature in the accounting software used by the vendor. As a result, we cannot confirm compliance with Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, which mandates the maintenance of an audit trail feature in the accounting software employed by the company.”

Scenario 3:- Suggested Reporting for companies where even though the feature of Audit Trail is there but was not enabled the feature due to low levels of Operations for the year ending on 31st March 2024

• “During our audit of Limited for the year ended March 31, 2024, we observed that the company used accounting software to maintain its books of accounts but did not enable the audit trail feature from April 1, 2023, due to low levels of business operations. On September 30, 2023, the Board of Directors decided to maintain the books of accounts manually without using the software.
• As the audit trail feature was not enabled while the accounting software was in use before the switch to manual record-keeping, this does not comply with Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, which requires that companies maintain an audit trail in their accounting software.”

Scenario 4:- Suggested Reporting for companies where the company has been incorporated after 01/01/2023 but before 31/03/2023 thus the Audit was to be done under the Companies Act, 2013, for more than 1 year for the period ending on 31st March 2024

• “In accordance with the requirements of Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, as amended, we report that the provisions regarding the maintenance of an audit trail using accounting software, which became effective from 1st April 2023, are not applicable to Limited for the FY commencing 1st January 2023 and ending 31st March 2024, as the financial year commenced before the effective date of the rule.”

Scenario 5:- Suggested Reporting for companies Where Opening Balances have been Affected due to Observation during last Year’s Audit

• “In accordance with the requirements of Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, as amended, we report that the Company has maintained its books of account using accounting software which includes a feature for recording an audit trail (edit log) of all changes made in the books of account from 1st April 2023 to 31st March 2024.
• During the course of our audit, we observed that on 30th April 2023, the Company made adjustments in the financial statements for the financial year ended 31st March 2023, including adjustments related to provisions for bad debts. These adjustments impacted the closing balances as of 31st March 2023, which subsequently became the opening balances as of 1st April 2023 for the financial year 2023-2024.
• We noted that these changes, although affecting the opening balances for the current financial year, were not captured by the audit trail feature of the accounting software as required by Rule 11(g). This indicates that the audit trail for changes made after 1st April 2023, which impact the opening balances for the financial year 2023-2024, has not been adequately maintained.
• • Based on our examination, we conclude that the audit trail for such changes does not fully comply with the requirements of Rule 11(g) as the feature did not capture the adjustments made to the opening balances of 1st April 2023, resulting from changes made after the effective date of the rule.”

Scenario 6:- Suggested Reporting for companies for the preservation of audit trail for the year ending on 31st March 2024

• Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account for the financial year ended March 31, 2024, which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit, we did not come across any instance of the audit trail feature being tampered with.
• Since the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on the preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024.

Scenario 7:- Suggested Reporting for companies where Books of Accounts are maintained manually for the year ending on 31st March 2024

• “In accordance with the requirements of Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, as amended, we report that the provisions regarding the maintenance of an audit trail using accounting software, which became effective from 1st April 2023, are not applicable to Limited, as the Company is manually maintaining the Books of Accounts for the financial year ending 31/03/2024.”

Disclaimer: This Article is shared by CA NITIN KANWAR. He can be reached at nitinkanwar@globalca.in.