Postponement of Audit Trail (Edit Log) Rule in Accounting Software to 1st April,2023

The Ministry of Corporate Affairs (MCA) recently issued a notification to amend the date on which the audit trail rule in accounting software to be mandated for companies.

According to the notification, the new audit trail rule in accounting software will now be implemented from 1st April,2023.This was originally planned for 2021 and but later the effective date was moved to 1st April,2022. Now, it is postponed to 1st April, 2023.

Background of audit trail rule

According to the notification issued on 24th 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 1stApril, 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.

Audit Trail (edit log) features of TallyPrime Edit Log Release 2.1

The latest release 'TallyPrime Edit Log Release 2.1', is enhanced with the edit log feature that caters to the amendment released by the Ministry of Corporate Affairs (MCA). Following are the features of TallyPrime edit log release:

• 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.’