Audit Trails help maintain the integrity of a transaction by documenting all business transactions. It helps ensure businesses practice fair transactions throughout the financial year and beyond. In TallyPrime, there is an in-built feature for Tally Audit. This feature makes it easy for auditors to track changes made to the ledger master, date and amounts recorded in the voucher. In short, the audit trail in TallyPrime makes the financial evaluation process much more seamless and effective.
A. What is an Audit Trail?
An audit trail is a collection of records documenting every step in a business transaction, including invoices issued for payments or sales contracts revenue.
It helps business owners determine and evaluate financial performances, find out bottlenecks (if any), and align different aspects of business with long-term goals, short-term plans, and other several initiatives.
For example, Payroll and other resource records prove that the employees are treated fairly.
A complete audit trail serves as authentic proof to investors or lenders, validating information on financial statements. It also helps meet the government record-keeping requirements for tax purposes.
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B. Importance of Audit Trail in Accounting
1. Fraud Prevention: The audit trail makes fraud detection easy. The legitimacy of a transaction can be proved if strict adherence is observed while creating an audit trail, as it can provide relevant information.
- It is a must to have supporting documents like purchase orders and approved invoices for all business transactions since they help prove the validity of a transaction.
- Bank reconciliation can be referred to as a part of an audit trail if performed by someone other than the cheque writer or signer.
- Apart from detecting fraud, an audit trail also prevents it. Since employees are aware that the management is tracking and monitoring their activities regularly, there will be no opportunities for conducting or participating in any fraudulent activities.
2. Payroll and Human Resources: Payroll and human resources are a vital part of the audit trail.
- Government regulations have made it mandatory for organisations to keep records concerning the hiring, termination, pay, and eligibility of the employees to work in this country.
- Fines are levied on violations of these regulations, which could consume resources you’d rather use to grow your business.
- Unnecessary time & resources spent on resolving employee disputes can also be avoided.
Hence, keeping all payslips, time cards, and other employee records can turn out to be a wise decision, minimising potential risks of disputes that can considerably threaten the health and progress of smaller companies.
3. Audits: Businesses may be audited from time to time by federal, state, and local government entities that include the IRS, local agencies, and state revenue departments.
For instance, if your employee belongs to a specific union, your contracts should state a clause that indicates the right of the union to audit your payroll records.
Keeping these records well-organized will work in your favour, for they provide first-hand evidence that your business is operated as per the mandatory rules and regulations.
4. Loan and Investor Documents: Business plans and financial statements are required to obtain a bank or small business administration loan. These documents work as proof of revenue and expenses for lenders to document the contents of the financial statements.
In this case, an audit trail will provide the necessary documentation required to validate it. Maintaining records of all transactions will speed up the lending process, making it more efficient and reducing the audit cost considerably.
5. Source Documents: An audit trail consists of source documents (original documents) that include cheques, invoices, time cards, or any written record that triggers an accounting transaction. It is essential to maintain an organised, easy-to-use filing system to have easy access to documents, especially in times of emergency.
An audit trail serves as a platform for your business to thrive and meet the record-keeping requirements of different authorities such as government agencies, unions, leaders, and investors.
C. How to Enable Audit Trail in TallyPrime?
To enable an audit trail in TallyPrime, first enable Security Controls (Tally Audit feature) while creating a company.
Use the administrator login id or create a new user id (with Tally Audit access) by selecting Audit Listings in the respective security level.
Follow the below steps to enable the Tally Audit trail:
- Go to the Gateway of Tally → press Alt+K for Company → select Alter.
- On the Company Alteration screen, there is an option ‘Enable Tally Audit features’. Set this to Yes.
The Tally Audit Listing can be displayed or printed, and the transaction made can be verified by the auditor/administrator.
If the auditor/administrator is satisfied with the authenticity of the transaction or the changes made, they’ll accept all or selective transactions.
After the transactions are accepted, they are removed from the audit listing and shall not be displayed again.
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Audit Trail Rule from 1st April 2022
All businesses that come under the purview of MCA (Ministry of Corporate Affairs) and make use of accounting software for maintaining books of accounts should have an audit trail feature. It should consist of the following:
- An audit trail of each change made in the books of account
- Capturing the date details correctly as & when such changes or edits are made
- Reliable accounting software to ensure the audit trail (edit log) cannot be disabled
In simple words, businesses need to maintain an audit trail of every transaction, right from recording to tracking the changes made.
- Who uses an audit trail?
- How long should you maintain an audit log?
- What is an audit trail and what is its purpose?
The Audit trail is used in different financial areas. A mortgage lender may use an audit trail to determine the source of funds he will receive as a down payment. A Chartered Accountant (CA) may use it to handle the finances of the company he is hired for. The Security and Exchange Commission (SEC) can use audit trails for the explicit reconstruction of their trade when the validity or accuracy of their trade data is questioned.
Maintaining an audit trail is a frequent regulatory requirement in many financial domains and one of the best accounting practices. As per general rule, an audit log should be maintained for 90 days “hot”, wherein you can search or report on them with relevant tools actively. 365 days “cold” refers to the log data you have backed up or archived for the long-term.
An audit trail is a systematic record that helps trace the source of accounting, trade details, or other financial data. Its main purpose is to verify and track all kinds of transactions – work processes, accounting details, trades in brokerage accounts, and more.
Learn about other such features available with TallyPrime Auditors Edition here.