If you are not sure about what an audit trail is, let us tell you about it! It is a set of documents that show the validity of your transactions. It is called a trail as it helps keep track of the source of the transaction. This set of documents includes information like the purchases, expenses, and sales of your company.
From April 2021, India has made it compulsory for companies to keep a properly valid set of documents for all transactions. This is because the Indian government wants complete transparency in the working and functioning of the companies and businesses. There are various other reasons, including safety measures, protection, proper Accounting, etc.
Rules Made By The Indian Government Regarding The Audit Trail
These many rules are made by the Indian government in its recent amendment to the auditory sections of companies in the constitution. These rules are to be strictly adhered to by every company and business in India. Some of the rules are mentioned below.
- Usage of electric mode in maintaining the accounting.
- Regular checks of these accounts by members of the board of directors.
- A statement stating the features of the financial statements of subsidiaries.
- Important matters are to be included in the report of the director.
- CSR policy should be disclosed.
- Salient features of financial statements should be summarized into a formal statement.
- There should be an internal auditor in every company and business.
- The accounting standards of the maintenance books have to be met.
The rules are expected to come into force from April 2021. They are supposed to be followed by everyone seriously. Any ignorance of any aspect of this law is punishable by law.
Reasons for this Step
The Indian government has other reasons to make an audit trail important for every company or business. This is because it believes that it has many advantages. They not only ensure transparency but also prove to be beneficial for the company or the business itself. The Indian government cites many reasons. One can look at the below-mentioned advantages of this step. These reasons will make it clear for everyone why the Indian government has seen this step as the betterment and development of companies and businesses.
One of the foremost reasons why an audit trail is required is because it prevents fraud. This helps in detecting and preventing frauds before they can take place. If you have a proper document that includes all the necessary information, you can prove that your transactions are valid. This prevents fraud. Even if it cannot ensure that no fraud is taking place, this valid set of documents at least helps minimize the risk factors involved.
This is a great way of ensuring accuracy in your financial statements. A business owner will easily be able to ensure more accuracy in their valid purchases, sales, and expenses. This will help them if they are questioned by formal authorities. You will be able to make great decisions for your company if you have accurate information regarding your company’s finance.
Not only can you track down your transactions, but you can also give your auditors and other such officials a proper set of documents through your audit trail. This will extremely help your auditors as they will be able to complete the procedure quickly and efficiently. This can also help decrease their stress. This is because they will not be required to conduct their research that can take hours or even days.
You can easily gain your resources and transactions back even if there is a disaster that has befallen your company. Your finance books will be able to give you all the necessary information about the company that you might have lost. However, for this, you should ensure that you are creating a proper backup of your trails. This will help you extremely during times of need. Creating trails through computerized means is the best.
There can be situations where one can lose a particular transaction record. An audit trail can easily help recover these. This comes in handy if you are unable to match a certain purchase or sell in your account to your budget. The formal finance set of documents will prove to be beneficial for this. Not only this, but the government will also be able to keep track of your transactions and help you with information.
Making an audit trail is a difficult task. However, if one has regular audit checks and maintains their documents showing all transactions, it is immensely beneficial. The Indian Government for sure benefits from this step as it can ensure more transparency in the working and functioning of the companies. However, it is immensely beneficial for the companies, too, as these documents will protect them against many disadvantages. A business owner should hire an auditor to maintain the sales, purchases, and expenses of the company.