In today’s digital world, businesses are heavily dependent on accounting software to manage their financial data. After the implementation of Goods and Services Tax (GST) in India, the use of accounting software has become vastly significant. However, one of the significant features that businesses should look for to improve their financial management is choosing accounting software with an audit trail feature in India.
What is an audit trail in accounting
The recording of all financial transactions that traces the history of a transaction from its beginning to its end is what an audit trail in accounting is known as. According to The Ministry of Company Affairs, the audit trail feature was mandatory in GST compliant accounting software from 1st April 2023. It is an essential feature of accounting software, helping to maintain the accuracy and integrity of financial data. The audit trail records all entries and changes made to financial transactions, including the person making the changes and when they were made. The audit trail feature ensures that all financial transactions maintain transparency and can easily detect or prevent fraudulent or unauthorized activity.
What information should an audit trail contain
- Information on all the transactions taking place within the company, including the date, amount, and nature.
- All changes made to the books of accounts, including the date and nature of the change.
- Details of all authorization for transactions and changes to the books of accounts, such as names of the persons who authorized them.
- Approvals and rejections of transactions and changes to the books of accounts, including the names of the person who approved or rejected them.
- Details of the accessibility to the books of accounts, including the date and time of access, and the name of the person who accessed them.
- All backup and restoration activities related to the books of accounts.
Important to note
The company should maintain the audit trail for at least eight years from the end of the financial year for which it pertains. It will benefit the regulators to trace the history of any transaction and identify any irregularities. Audit trail management prevents financial irregularities and keeps the company compliant with all relevant laws and regulations.
Limitations of Implementing Audit Trail
- Transferring data between software: If the current accounting software does not have the features of the audit trail then the company needs to migrate data into a different GST-compliant accounting software which can be a big challenge and expensive for the organization.
- Re-establishing roles and responsibilities: Normally companies do not create separate user profiles to define their rights and responsibilities, and transactions are entered from a general profile. However, Companies now need to define the user roles and responsibilities for identifying who recorded or modified the transactions.
- More storage cost: Since the software tracks all transactions and modifications, the system requires additional storage. Additionally, processing time can be slowed down due to bulk data.
- Higher compliance cost: Small companies often avoid using accounting software to maintain detailed books of accounts due to the cost of the software and accounting staff. Instead, they tend to maintain an Excel summary of their accounting. However, companies with fewer transactions also need to maintain books of accounts in GST accounting software that has the audit trail feature, throughout the year on a real-time basis. This requirement involuntarily will increase the cost of compliance.
Benefits Accounting Software with Audit Trails
Using accounting software with an audit trail in India provides businesses with several advantages, including:
- Transparency: With audit trail management, businesses can ensure transparency of all financial transactions. This means that all changes in the financial data can be traced back to their source.
- Increased accuracy: Using an audit trail in accounting ensures the accurate recording of all financial transactions and reduces the chances of any errors. It limits unauthorized changes by ensuring the reliability and trustworthiness of the data.
- Fraud detection: An accounting software with an audit trail in India can help businesses detect unethical activities by identifying any unauthorized modifications to financial data. This feature prevents financial losses and protects the business from legal and reputational damage.
- Compliance: In India, businesses maintain accurate financial records complying with various regulations, including the GST. Benefitting from audit trail and compliance by using accounting software can help businesses meet these regulatory requirements easily.
How to Select the Right Accounting Software with Audit Trails
While looking for accounting software with an audit trail feature in India, businesses should consider the following factors:
- Intuitive interface: The software should have a user-friendly interface for easier audit trail management. This will ensure that the business can effectively monitor the financial information without any complications.
- Integration with other software: The accounting software should have a simple integration process with other systems that the business uses, such as inventory management software or payroll management software. This ensures that the entire financial data stays uniform across different software systems.
- Data security: The accounting software should have top-level security features to safeguard financial data from unauthorized access, such as encryption and multi-factor authentication.
- Customer support: The accounting software provider must offer good customer support to help businesses with any technical issues or queries regarding audit trail management.
Functions of Audit Trails in Accounting Software
The audit trail feature in accounting software plays an important role in maintaining the integrity and accuracy of financial information. Here are some of the key functions of audit trails in accounting software:
- Compliance: With the introduction of GST in India, businesses are required to maintain compliance through accurate financial records for tax purposes. Using accounting software with an audit trail feature provides compliance for businesses with regulatory requirements by ensuring that all financial transactions are recorded and traceable.
- Transparency: The audit trail management feature provides transparency into financial transactions, which is essential for businesses to understand their financial position by allowing businesses in identifying any errors and rectify them before causing any financial damage.
- Fraud Prevention: An audit trail feature helps businesses identify fraudulent activities by pinpointing unauthorized changes to financial data. This feature can help mitigate financial losses and safeguard the business from legal and reputational damage.
- Decision-making: Accounting software with an audit trail feature aids decision-making through accurate and reliable financial data. It helps forecast financial data and make productive decisions based on the data.
Using accounting software with an audit trail feature is essential for businesses to maintain financial data accurately and transparently. It provides businesses with several benefits, including audit trail and compliance, transparency, fraud prevention, and better decision-making. Experience WrkPlan cloud ERP software that has an accounting module integration with the audit trail feature, ensuring businesses that their financial data is accurate, reliable, and secure. For more information, contact WrkPlan for a free system demonstration or dial 1800 120 2499 to get in touch with their consultant.