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ANALYSIS-OF-AUDIT-TRAIL-A-COMPREHENSIVE-GUIDE-FOR-BUSINESSES-AND-AUDITORS
ANALYSIS OF AUDIT TRAIL: A COMPREHENSIVE GUIDE FOR BUSINESSES AND AUDITORS
(Included below is an exemplary template showcasing the adept incorporation of the audit trail segment within audit reports)
In today's digital age, where every transaction and financial record is digitized, maintaining the integrity and security of financial data is paramount. With the introduction of stringent regulations and compliance requirements, such as the Companies (Accounts) Rules and Companies (Audit and Auditors) Rules, 2014, the importance of an audit trail in accounting software cannot be overstated.s
Understanding the Audit Trail Requirement
The Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 mandates that companies utilizing accounting software must employ software that records an audit trail of every transaction, ensuring that the audit trail cannot be disabled. This necessitates meticulous attention from management to select appropriate accounting software that meets these criteria.
Management Responsibility and Implementation
Management bears the primary responsibility for ensuring compliance with these regulations. This involves selecting accounting software equipped with audit trail features and implementing internal controls to safeguard the integrity of financial data. It is imperative that management identifies the software used for maintaining books of account and ensures the audit trail feature remains enabled throughout the reporting period.
Auditor's Role and Reporting Obligations
Auditors play a crucial role in verifying compliance with audit trail requirements. Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 explicitly tasks auditors with assessing whether the company has used accounting software with audit trail capabilities, whether the feature was operational throughout the year, and if the audit trail has been preserved as per statutory requirements.
Incorporating Audit Trail in Audit Reports
The auditor's report, under Section 143(3) of the Companies Act, 2013, includes reporting on audit trail compliance. Auditors assess whether the audit trail feature is configurable, if it covers all transactions recorded in the software, and whether it has been preserved according to statutory retention requirements. These reports provide stakeholders with assurance regarding the integrity and reliability of financial reporting processes.
Implementing Internal Controls
To ensure the effectiveness of audit trail features, companies must implement robust internal controls. These controls include measures to prevent disabling or deactivating the audit trail, assigning unique user IDs, maintaining logs of configuration changes, restricting access to audit trail data, and conducting periodic backups.
Conclusion
In conclusion, the audit trail serves as a cornerstone of financial transparency and accountability. By adhering to regulatory requirements, implementing robust internal controls, and ensuring compliance with audit trail standards, businesses can instill trust and confidence in their financial reporting processes. Auditors, in turn, play a vital role in evaluating and verifying the effectiveness of these measures, providing stakeholders with the assurance they need to make informed decisions.
Here is some format that demonstrates how auditors incorporate the audit trail paragraph into their audit reports
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COMPANY NAME:- Persistent Systems Limited AUDITOR:-Walker Chandiok & Co LLP |
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AT THE BEGNING OF THE AUDIT REPORT (IN OPINION SECTION) As stated in Note 57 of the accompanying Consolidated financial statements and based on our examination which included test checks and that performed by the respective auditors of the subsidiaries of the Holding Company which are companies incorporated in India and audited under the Act, except for the instances/matters mentioned below, the Holding Company, and it subsidiaries, in respect of financial year commencing on 1 April 2023, has used an accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we and respective auditors of the above referred subsidiaries, did not come across any instance of audit trail feature being tampered with.
As per 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 preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024. NOTES FORMING PART OF CONSOLIDATED FINANCIAL STATEMENTS The Ministry of Corporate Affairs (MCA) has issued a notification (Companies (Accounts) Amendment Rules, 2021) which is effective from 1st April 2023, states that avery company which uses accounting software for maintaining its books of account shall use only the accounting software where there is a feature of recording audit trail of each and every transaction, and further creating an edit log of each change made to books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled. The Group uses a SaaS based ERP as a primary accounting software for maintaining books of account, which has a feature of recording audit trail edit logs facility and that has been operative throughout the financial year for the transactions recorded in the software impacting books of account at application level. The database of the accounting software is operated by a third-party software service provider. The ‘Independent Service Auditor's Assurance Report on the Description of Controls, their Design and Operating Effectiveness’ (‘Type 2 report’ issued in accordance with ISAE 3402, Assurance Reports on Controls at a Service Organisation) includes suitability of the design and operating effectiveness of controls. However, the availability of audit trail (adit logs) are not covered in the said report. In our view, the group's ERP being a SaaS based software, the audit trail at the database level is not applicable. |
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COMPANY NAME:- Infosys AUDITOR:-Deloitte Haskins & Sells |
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IN STANDALONE AUDIT REPORT Based on our examination, which included test checks, the Company has used accounting softwares 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 softwares. Further, during the course of our audit we did not come across any instance of the audit trail feature being tampered with. As 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 preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024. IN CONSOLIDATED AUDIT REPORT Based on our examination which included test checks, performed by us on the Company and its subsidiaries incorporated in India, except for the instances mentioned below, have used accounting softwares for maintaining their respective 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 softwares. Further, during the course of audit, we have not come across any instance of the audit trail feature being tampered with. The financial statements of two subsidiaries that are not material to the Consolidated Financial Statements of the Group, have not been audited under the provisions of the Act as of the date of this report. Therefore, we are unable to comment on the reporting requirement under Rule 11 (g) of the Companies (Audit and Auditors) Rules, 2014 in respect of these two subsidiaries. As 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 preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024. |
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COMPANY NAME:- Computer Age Management Services Limited AUDITOR:- Brahmayya & Co. |
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Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1, 2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31, 2023. |
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COMPANY NAME:- FGP LIMITED AUDITOR:- MVK Associates |
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Based on our examination, which included test checks, the Company has used accounting softwares for maintaining its books of account for the financial year ended March 3 I, 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 softwares. Further, during the course of our audit we did not come across any instance of the audit trail feature being tampered with. As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April I, 2023, reporting under Rule l l(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024. |
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COMPANY NAME:- BOMBAY SUPER HYBRID SEEDS LIMITED AUDITOR:- Gautam N Associates |
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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 31st March 2024 which has a feature of recording audit trail (edit log) facility and the same has been made operational w.e.f. 1st April 2023 for all relevant transactions recorded in the software. Further, during our audit we did not come across any instance of the audit trail feature being tampered with.
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COMPANY NAME :- PI Industries Limited AUDITOR:- Price Waterhouse Chartered Accountants LLP |
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- Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and that has operated throughout the year for all relevant transactions recorded in the software, except that the audit log (a) is not maintained at the application level in case of modification, if any, by IT administrator with debug access rights to find and fix errors; and (b) was not enabled to record any direct changes at the database level. During the course of performing our procedures, in respect of the audit trail feature enabled, we did not notice any instance of the audit trail feature being tampered with. Also, refer note 47 to the standalone financial statements. - Based on our examination, which included test checks and that performed by the respective auditors of the subsidiaries, associate and joint venture entity which are companies incorporated in India whose financial statements have been audited under the Act: (a) the Holding Company has used accounting software for maintaining its books of account which has a feature of recording audit trail ( edit log) facility and that has operated throughout the year for all relevant transactions recorded in the software, except that the audit log (a) is not maintained at the application level in case of modification, if any, by IT administrator with debug access rights to find and fix errors; and (b) was not enabled to record any direct changes at the database level. During the course of performing our procedures, in respect of the audit trail feature enabled, we did not notice any instance of the audit trail feature being tampered with. Also, refer note 45 to the consolidated :financial statements. (b) the following remarks were included in the audit reports dated May 15, 2024, April 26, 2024, April 25, 2024 and April 23, 2024 containing an unmodified opinion issued by other auditors on the consolidated :financial statements for two subsidiaries; and on the standalone :financial statements of four subsidiaries, which is reproduced as under :
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COMPANY NAME :- lndiaMART lnterMESH Limited AUDITOR:- BS R & Co. LLP |
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Based on our examination, which included test checks, and that performed by the respective auditors of the subsidiaries, which are companies incorporated in India whose financial statements have been audited under the Act, except for the instances mentioned below, the Holding company, and subsidiaries have used accounting software for maintaining its books of account 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. - the feature of recording audit trail (edit log) facility was not enabled at the database level to log any direct data changes for the accounting software used for maintaining its books of account. - the feature of recording audit trail (edit log) facility was not enabled at the application level of the accounting software used for maintaining its books of account. for the period from 1 April 2023 to 27 January 2024 for one of the subsidiary company. Further, audit trail (edit log) facility was not enabled for full year in relation to certain master data records of such accounting software. - the accounting software relating to revenue did not have the feature of audit trail (edit log) facility in respect of one of the subsidiary company. - the feature of recording of audit trail (edit log) facility was not enabled for the accounting software used for maintaining its books of accounts for the period from 1 April 2023 to 30 June 2023 for one of the subsidiary company. - the feature of recording of audit trail (edit log) facility was not enabled for the accounting software used for maintaining its books of accounts for the period from 1 April 2023 to 31 May 2023 for four subsidiary companies. Further, for the periods where audit trail (edit log) was enabled and operated, during the course of our audit, we and respective auditors of the above referred subsidiaries did not come across any instance of audit trail feature being tampered with. |
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COMPANY NAME:- Dabur India limited AUDITOR:- G Basu & Co |
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Since requirement of maintenance of accounting software which has a feature of audit trail under Rule 3 of the Companies (Accounts) Rules, 2014 has been deferred from financial year commencing from 01 April 2022 to financial year commencing from 01 April 2023, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended 31 March 2023. |
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Article Compiled by:-
Mayank Garg
+91 9582627751
(LegalMantra.net Team)
Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.