- SAP Managed Tags
View on “Audit Trail” Requirement as Per companies Act and how ERP’s should have capability to establish trail.
- Accounts Rule
1.1. The amendments in the Companies Act 2013 vide Proviso To Rule 3(1) Of Companies
(Accounts) Rules, 2014 states that “Provided that for the financial year commencing on or after
the 1st day of April 2023, every company which uses accounting software for maintaining its
books of account, shall use only such accounting software which has a feature of recording
audit trail of each and every transaction, creating an edit log of each change made in the
books of account along with the date when such changes were made and ensuring that the
audit trail cannot be disabled”
- Audit and Auditors Rule
2.1. The audit trail feature is also required to be commented upon by the Auditors as specified in
Rule 11(g) Of Companies (Audit And Auditors) Rules, 2014 which states that “Whether the
company, in respect of financial years commencing on or after the 1st April, 2022(*), has used
such accounting software for maintaining its books of account which has a feature of recording
audit trail (edit log) facility and the same has been operated throughout the year for all
transactions recorded in the software and the audit trail feature has not been tampered with
and the audit trail has been preserved by the company as per the statutory requirements for
record retention”
. (* - consider as April 1, 2023 as Accounts rules are wef that date )
- Integrated and Non Integrated applications for Books of Account
3.1. Companies, based on their scale, complexity of operations and appetite for IT expenditure
may implement fully integrated / partially integrated or non integrated IT softwares for the
maintenance of books of accounts.
3.2. In case of integrated applications, the general ledger ( from which the Trial Balance and there
after the financial statements are drawn ) are integrated with the sub ledgers. For example,
the entire fixed assets register ( which is reconciled to the General Ledger balance for Fixed
Assets accounts ) would be recorded, summarized and stored in the accounting software.
3.3. In a non-integrated scenario, although the main software may or may not provide for the sub-
ledger capability, the general ledger may be maintained in the application software while the
sub-ledger ( or the break up for the GL balance ) may be maintained in a stand alone
application software which may also be say a dedicated software or even MS Excel.
3.4. As an illustration, let us say Company A maintains their books of accounts in SAP, the fixed
assets module may or may not be implemented. In the latter case , the detailed register may
be maintained in MS Excel and not in the core SAP platform . Both SAP and Excel would
ideally be concurrently updated for every financial transaction involving purchase, sale or
depreciation thereby enabling the reconciliation of the General and sub ledger
3.5. Other examples of non integrated / partially integrated scenarios may include Investment
registers, Inventory verification and valuation sheets, entries for adjustment entries to prepare
financial statements for reporting purposes etc
- Books of Account
4.1. In this context, it is first necessary to examine what constitutes “Books of Account”
, the key
focus of the rule whose primary purpose is to ensure the integrity of data recorded in the
accounting software
4.2. Sec 2 (13) of Companies Act 2013 defines “books of account” as “includes records maintained
in respect of (i) all sums of money received and expended by a company and matters in
relation to which the receipts and expenditure take place; (ii) all sales and purchases of goods
and services by the company; (iii) the assets and liabilities of the company; and(iv) the items
of cost as may be prescribed under section 148 in the case of a company which belongs to any
class of companies specified under that section”
4.3. It is hence, clear that books of account includes ideally all records in respect of receipts,
payments, purchases, sales, assets , liabilities and cost records.
- Books and paper
5.1. Sec 2 (12) defines “book and paper” and “book or paper” to “include books of account, deeds,
vouchers, writings, documents, minutes and registers maintained on paper or in electronic
form”
.
5.2. A reading of the above section makes it clear that book and paper is wider that books of
accounts which it subsumes. Books and papers would ideally support & / or form the basis
of transactions recorded or to be recorded in the books of accounts of the entity or created /
maintained for other business purposes also. However, such definition includes “registers”
maintained in paper or in electronic form
- The Ambiguity
6.1. There is some ambiguity on whether in such cases of maintenance of records in excel, other
spread sheets, etc, would the provisions of audit trail apply. Registers maintained, where ,
they are integral part of Income, expenses, assets , liabilities or cost records and which form
the basis of the same would be ideally considered as Books of Account and not as Books and
Paper
- Audit Trail Requirement
7.1. From the above, the following needs to be considered both by the management and the
auditors of companies covered under the rules ( rule covers all categories of companies ) in
determining the compliance / partial compliance / non compliance with the above rules
7.2. Evaluation of the Control Design parameters
- All books and papers maintained by the company to be understood
- Of the above, what records constitutes books of account to be identified
- How are these maintained – IT application or Spreadsheets
- Whether audit trail has been enabled
7.3. Operating Effectiveness parametersa. Is the Audit trail feature created for all books of account matters
- Is the audit trail operating effectively and not disabled
- Are edit logs available
- Books of account and Books and paper
8.1. As explained earlier, books and paper is larger in scope that books of account which “includes
records maintained in respect of (i) all sums of money received and expended by
a company and matters in relation to which the receipts and expenditure take place; (ii) all
sales and purchases of goods and services by the company; (iii) the assets and liabilities of the
company; and(iv) the items of cost as may be prescribed under section 148 in the case of
a company which belongs to any class of companies specified under that section”
This is an illustrative matrix that may be used by Corporates who do not have a completely
integrated accounting system software to ensure compliance with the statute [ (*) below [ (*) –
personal views of the author and for illustration purposes only ]
(*) – personal views of the author and for illustration purposes only ]
- Conclusion
The key objective of the rule as introduced was to ensure that the integrity of transactions recorded in
the books of accounts of the Company are protected and all alterations are properly identifiable and
management and audit practices should be ensured that the intent of the law is protected in a robust
and objective manner
- Srinath Ganesan
The above content is for reference only
Now Coming to FIORI Apps which could help to meet Audit Trail
https://fioriappslibrary.hana.ondemand.com/sap/fix/externalViewer/#/detail/Apps('F0997')/S33
SAP S/4HANA Cloud Public Edition Finance SAP S/4HANA Finance
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