Companies use accounting software to check the audit. The software records the data, and it is essential to document the timely changes made to the data. The audit trail is for companies with software backup. Previously it is said by MCA that in a small business, where the accounting and other data are maintained manually no need for an audit trail. Now, it has become mandatory to have software for audits. The Banks, SEC, and NYSE do audit trials to check the funds in the account and the trading transactions. In addition to the audit trail, the regulators ask for forensic accounting depending on the history or data.
Why do companies need audit trials?
Big corporations find it difficult to allocate time and money for different operations. The audit log and trial system help in curbing fraud and financial crime. The sensitivity of the data urges the company to maintain audit logs. The audit log records the following things: history of transactions, time of the event, user information, and impacted entity. Audit trail guidelines are only for companies with software backup. It does not apply to companies with departments working on a manual basis. Listed companies and big corporates use software to record the audit process.
Guidelines for audit trial:
The auditor guide helps the auditors to increase transparency and accuracy. The reliability of financial data is essential for businesses with multiple branches. The voluminous data need to be tracked with the proper system to update the history and reason for the changes made. MCA is making changes to the edit logs, accounting software and reporting. The following guidelines explain the format to record in the audit log:
Introduction to amendments of companies rules, 2014:
- Rule 3 of amendment rules, 2021 says that companies using audit software should record the data along with the changes. The company should make sure that the trial software is not disabled.
- The status at the financial year end must have the clause for application or pending from bankruptcy code and insolvency.
- If the company apply for the loan, the value of the company changes. The value of the company changes during one-time settlement and loan. The difference should be mentioned with the reasons.
- Rule 8 insists the companies give the matters in the board’s report.
- The primary responsibility of the audit data and process is with the management.
- The management should record the accounting transactions with an edit log.
- The management should check the software that supports the maintenance.
- The software should have the trial feature.
- The trail also should show the real transaction and changes made.
- The changes in the software should go to the database level.
- The audit trial retention is as per the statutory requirement.
- Identify and communicate the control deficiency.
- During the testing phase, fraud and material misstatements should be identified.
- The accounting rule says that the management of private or public or foreign companies is responsible for the implementation process. The audit trail feature should have internal control. The internal controls are checked by the management team first and then by the auditors.
- The rule says that from April 1, 2023, the management is responsible for the safety of the records for a minimum of eight years.
- If there is an investigation process, chapter XIV of the central government says that records are maintained for a longer period as there is a requirement to check.
- In case of non-compliance, the chief financial officer, whole-time director, and managing director get a penalty of 50,000 or 5, 00,000 for the issue.
Introduction of the implementation guide:
The implementation guide is the set of rules that guide the auditor about the performance. The books of accounts and accounting software should be reliable and transparent. The implementation guide explains the various scenarios faced during the reporting process. The implementation guide helps perform the duties efficiently. AASB of ICAI issued the implementation guide.
- The configuration of the software, the period of operation of the trial software, the different types of transactions recorded in the audit trial software, and record retention are the checkpoints for an auditor in the audit software.
- The auditor must check the details of the software as follows: the web portal details, databases, data warehouses, applications, data lakes, IT components, and cloud infrastructure.
- The audit trail records the data and changes in the transactions from time to time. The following details are required when making changes: when the changes were made, the name of the person or designation who made the changes and the details of the data that was changed.
- Check the control points and maintenance are working during the reporting period.
- The management should decide on the number of trials for the audit trial.
- The auditor should take written consent from the management for the control points and maintenance points of the audit trial.
- The management should submit the evaluation and deficiencies in the audit trail to the auditor.
- The unresolved deficiency is communicated to the audit team in written form.
- The document for the plan and performance of the audit is as per the implementation guide. The implementation guide explains the work performance of the audit process.
MCA announced that with effect from 1st April 2023, the small, big, not-for-profit companies, and companies registered under the company’s act 2023, section 8 must use the software mechanism. The software for the audit trial should have the edit and other features mentioned by the institute.
Preservation of audit trials:
MCA states that management should preserve the records in the audit process for eight years.
The main guidelines are the implementation report, auditor responsibility, auditor responsibility, period and applicability. The other guidelines are about the audit approach, special consideration of fraud scenarios, words used in the report, reporting under rule 11(g), audit documentation, written representation, glossary of terms, illustration of accounting software and management representation letter. The audit report consists of five divisions. They are as follows: title of the report, opening paragraph, addressee details, scope paragraph, opinion paragraph, signature and place.
The audit trial software brings transparency and maintenance of the data with quality. The regulatory body insists on quality standards. The data and numbers change during the final report preparation. Maintaining the history of the accounting process and auditing calculations helps maintain perfection.