Audit Trail- It’s Benefits and Implications

 

Have you struggled to find the accurate amount of a transaction to close out the month?

Maybe your team scrambled around to recognize what went wrong in the reporting cycle; or tried to identify how you achieved stronger sales last quarter.

Problems like workflow issue solutions, significant accounting errors, and budget assessments can all be answered through an intuitive audit trail.

Let’s look into the audit trail and why it is a critical feature in your accounting software.

 

What is An Audit Trail?

An audit trail or an audit log is an organized record to trace the foundation of financial data and provides sequential, documentary evidence of a series of events and is therefore used to verify the precision of data and track transactions.

Important information about the activity on a computer system will be available to the auditor from the audit log. An audit trail regains the suitability of the computer system.

Various industries use versions of an audit log to deliver a historical record of advancement based on a chain of events. These records provide operational integrity and proof of compliance.

Audit logs can also detect regions of non-compliance by providing information for audit investigations. The recent notification makes it mandatory for businesses to use accounting software that preserves the audit log of all transactions.

 

Benefits and Objectives of Audit Trail

Accountability

It sets individual accountability of enterprises in terms of the actions of users. It prevents the introduction of incorrect information or unapproved access to data.

Further, users are less probable to try to circumvent security policy. If the user knows that their actions are automatically recorded and tied to their unique identity.

 

Intrusion Detection

Intrusion detection refers to the process of recognizing attempts to enter a system and gain unauthorized access. Many policies have made it obligatory for maintaining data privacy.

It extends to the protection of personal information, intellectual property, financial records, etc.

When an intrusion occurs, the audit trail can provide valuable information for investigating the incident. It can reveal the specific actions taken by the intruder, such as the files accessed, modifications made, or attempts to exploit vulnerabilities. This information helps security personnel understand the scope of the breach, assess the potential impact, and take appropriate measures to mitigate the damage.

In summary, the intrusion detection benefits of audit trails include:

a) Identifying unauthorized access attempts and potential security breaches.
b) Facilitating investigations by providing detailed information about intrusion activities.
c) Supporting compliance with data privacy regulations.

 

Problem Identification

Audit trails may also be employed as online tools to help recognize problems other than invasions as they arise. This is frequently referred to as instantaneous auditing or examining.

If a system or application is deemed important to an organization’s business or mission, instantaneous auditing may be practiced to check the status of operational issues, uncommon or suspicious activities, or system errors through real-time monitoring.

 

Reconstruction of Events

Another essential benefit of audit trails is their ability to reconstruct events and provide a historical record of system activities. In the event of a system failure, security incident, or data corruption, audit logs can help organizations understand what happened, when it occurred, and why it occurred.

Assessment of damage can be e more effortlessly by reviewing audit trails of organization activity to identify how, when, and why normal operations were s terminated.

Visibility into this information can help prevent future occurrences of hacking, system failures, outages, or corruption of information and detection of these in advance.

Moreover, audit logs enable organizations to track system performance and identify any errors or inefficiencies. By monitoring the trail in real time, organizations can detect system errors, identify bottlenecks, and take proactive steps to ensure uninterrupted operations.

In summary, the reconstruction of events benefits of audit logs include:

a) Understanding the sequence of events leading to system failures, security incidents, or data corruption.
b) Determining the root cause of the problem and implementing corrective measures.
c) Providing valuable information for forensic analysis in the case of cyberattacks.
d) Monitoring system performance and identifying errors or inefficiencies.

 

Fraud Detection & Prevention

By implementing robust audit log mechanisms, organizations can deter potential fraudsters, as the knowledge that their actions are being monitored and recorded acts as a deterrent. The availability of an audit trail also promotes a culture of accountability and transparency, discouraging employees from engaging in fraudulent behaviors.

Ultimately, a well-maintained audit log strengthens the organization’s internal controls, helps safeguard assets, and minimizes the financial and reputational damages associated with fraud incidents.

 

Government Notification About Audit Trail

The Ministry of Corporate Affairs (MCA) recently delivered a notification concerning the implementation of Gazette Notification No. GSR 205 (E) dated 24th March 2021 – Amendment to Rule 3(1) of Companies (Accounts) Rules 2014 which seeks to bring a host of improvements and reforms in the way businesses function in India.

The key takeaways of the notification for small businesses are as follows:
For the financial year beginning on or after the 1st of April 2022, every business which uses accounting software for maintaining its books of account shall only use software that has an audit trail feature comprising of the following:
1. Ability to record an audit log of every transaction
2. Creating an audit log of each change made in the books of account,
3. Capture the details of changes (edits) such as date,
4. Ensure that no disablement of the audit log happens.

With these amendments, the government intends to bring more transparency and will enable tax departments to have better control over tax evasion and maintain books of account truly and correctly, which eventually will give a boost to the Indian economy.

Trailing all of the activities surrounding a particular transaction is an audit trail. The notification has an impact on companies, software providers, and auditors.

The objective appears to be to spot manipulation of electronic accounting histories by the y administration of corporates to play fraud on the interests of stakeholders (investors, financiers, tax authorities) and in the process, defeat the object and purpose of the law.

 

How To Compy With This Rule Using ProfitBooks

Enforcing the use of audit trails for transactions recorded in accounting software by the government is a positive step in restricting transaction fraud. While the rule is important, it is up to businesses to choose the right software with all the features.

With Profitbooks, you can create professional invoices, track expenses and manage inventory. It’s a simple yet powerful tool to manage your business workflow.

In addition to core accounting, ProfitBooks offers many useful features not found in other traditional software. Some of them as listed below:
1. Powerful Inventory Management features
2. Invoicing with payment gateway integration
3. Expense Tracking
4. Support for multiple currencies
5. In-depth financial reporting
6. Audit Trail functionality

Audit Trail In ProfitBooks Accounting Software

 

Final Notes

The government has shown its seriousness about minimizing fraud with the launch of GST e-invoicing for businesses and this new rule about accounting software having an audit trail. It is advisable to have accounting software with an audit trail feature.

ProfitBooks maintains a log of every change that is made in an application along with the timestamp and details of the user. It makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done.

Profitbooks believes in transparent business and already has the audit logging feature. It will make your task easier and save time.

The best part is, ProfitBooks is completely free accounting software.

Create Your FREE Account With ProfitBooks Now

 

Frequently Asked Questions (FAQs)

Q1. What will the audit log do exactly?

A1. In the audit log or trail, we at ProfitBooks keep a record of all modifications made to resources, projects, bookings, and settings. This includes information such as:

The type of action that occurred, whether it was a creation, update, or deletion.

For example, if someone updated a Booking Category. The specific details of the change that took place. For instance, if a new resource was added. The identity of the person responsible for making the changes. We provide the name of the resource who modified it. The timestamp indicates when the changes were finalized, including the date in the format YYYY-MM-DD.

By maintaining this detailed log, we ensure transparency and accountability by keeping track of all the important alterations made within the system.

 

Q2. Who is in charge of audit trails?

A2. An audit trail allows both internal and external auditors to track transactions within an accounting system. It provides a clear record that helps auditors follow the flow of transactions and identify any discrepancies or irregularities. By examining the audit trail, the accounting team can uncover errors and understand the causes of variations in financial statements.

Essentially, an audit trail acts as a helpful tool for auditors and the accounting team to investigate and address issues within the financial records.

 

Q3. What are the types of audit trails?

A3. The two main types of audit trails are system audit trails and user audit trails. System audits capture system-level events and activities, such as system logins, software installations, and configuration changes. User audits focus on individual user actions, tracking their activities within the system, such as file accesses, data modifications, and account privileges.

Both types provide valuable insights for monitoring and ensuring the security and integrity of systems and data.

 

Also Read:
How to make your business GST compliant
How to future-proof your business