Since April, the MCA has required companies to provide audit trail and transaction logs in their accounting software enabling e-invoicing, with auditors charged with monitoring and reporting the controls. Any organization that uses accounting software must only use programs that have the potential to build audit trails for transactions and audit trails for changes to the books. They went on to say that instead of a blanket rule, there should be a turnover cap, arguing that the change would hurt small businesses. Government sources, on the other hand, dismissed the complaint, arguing that the change was appropriate to deter fraud because there had been many cases of book falsification.
These represent the government’s admirable desire to increase accountability and enforcement. The aim appears to be to identify (wherever the claim is made) corporate management’s misuse of electronic accounting records in order to defraud stakeholders (shareholders, lenders, tax authorities) and, in the process, defeat the object and intent of law.
The agenda :
The audit trail refers to the record of all activities related to a specific transaction. Even though the requirement of an audit trail is very relevant and acceptable on a conceptual and regulatory level, we have a few reservations about the particular criteria outlined in the aforementioned notification.
While audit trails have existed for decades from an accounting and control perspective, businessmen and the accounting community that supports them do not fully comprehend the term. While the purpose of an audit trail is to track, penalize, and deter fraudulent changes in accounting entries, it’s important to remember that there’s also a dimension of “human error” to consider. ‘While making a sales entry of INR 1990, if the consumer types INR 1099 by mistake, they will need to change it later to represent the on-the-ground fact,’ is one example among many. This is how it works. This, on the other hand, would be captured in the audit trail, potentially causing needless problems for both the auditor and the company in question. Any model that depends on the interference of tax officers and raises the burden on companies is doomed to fail.
Here’s a much detailed insight into this situation with TIMES OF INDIA which throws more light onto the specification notified by the MCA.
The order specifies that implementation begin on April 1, 2021, which is less than a week after it was released. Businesses can experience panic, distrust, and resistance as a result of the hurried implementation. This will undoubtedly raise the cost of enforcement and put further pressure on the accounting profession. It will take time to prepare the entire ecosystem and all levels of professions for a fruitful and collaborative implementation of audit trail in the Indian business community.