Assurance Gazette – August 2024 Edition

We would like to introduce you to the Assurance Gazette of this month, which delves into the critical topic of audit trail and their indispensable role in maintaining financial transparency and accountability. This edition sheds light on the necessity of audit trail in today’s corporate environment, especially considering recent regulatory mandate under Companies Act. As companies navigate the complex landscape of audit trail compliance, this gazette offers valuable insights into the challenges faced and the solutions available. We hope this gazette will serve as a practical guide for ensuring rigorous financial oversight and protecting the integrity of corporate records. This Edition also briefs about the exposure Draft for a new Standard on Auditing (SA) focused on audits of financial statements for Less Complex Entities (LCEs). This proposed standard aims to adapt the audit process to the specific needs of LCEs, ensuring effectiveness and efficiency while maintaining alignment with professional standards. 

Necessity of Audit Trail: 

In the corporate world, financial transparency and accountability are fundamental principles that underpin trust and integrity. A key component in upholding these principles is the practice of auditing, particularly through the use of audit trails. An audit trail serves as a comprehensive digital record that meticulously logs each financial transaction and any changes made within a company’s accounting records. This digital footprint not only provides a historical record of financial activities but also acts as a crucial defence against fraudulent or erroneous actions. In alignment with these principles, companies are now mandated to comply with Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014. As of April 1, 2023, companies are required to use accounting software with an audit trail (edit log) feature, ensuring the audit trail remains operational throughout the year. This feature is crucial for accurately documenting all transactions and protecting records from tampering, in line with statutory retention policies. 

Hidden/Practical Challenges of Audit Trails: 

During the financial year 2023-24, which marks the first year of implementing and reporting on the audit trail, it has been noted that many listed entities, whose audit reports are publicly available, have encountered numerous practical challenges. These challenges have made it difficult for even listed companies to obtain an unqualified audit opinion.