The goal of the government to make it mandatory for the companies is pretty much the same. Though there are more compelling reasons to bring an audit trail into the system, not the least of which is eliminating all disarray within the existing system and providing ease to the employer to better handle their finances. Specifically, the purpose to go behind the audit trail is to facilitate employer compliance along with enhancing the enforcement of the law to bring more transparency to the system.
An audit trail or audit log comes down to the electronic record of every action, event, or activity of a user or a system that took place within the application. Such activity can be the creation, modification, corrections, and deletion of records or a sequence of automated system actions. Since the daily volume of such activities can vary from hundreds in small organizations to hundreds of thousands in large organizations that are very difficult to track, a solution for automated tracking i.e. audit trail is good, even compulsory to have as per new amendment made by the Ministry of Corporate Affairs.
Once having an integrated and secure audit trail in place, collected and aggregated logs can be used for different business purposes i.e. regulatory compliance that ensures your recorded logs comply with the existing standards and regulations, business analysis that helps you analyze over gain or loss, and data integration that allows you to reconstruct the data. Thus, it can help you reduce the time spent on reconstructing events, writing reports, and interviewing employees, or managing the events that are within your business sphere.
An audit trail can identify the errors/mistakes or unusual activities that happen in the system. In fact, it can help organizations make fraud detection, intrusion, or data theft in real-time. It can also help you identify exact problem areas, provide the ways to correct them, and protect your business from the problems associated with computer and electronic record-keeping challenges. This basically enables you to use a secure way to store and track activities, thereby enabling you to find out what or when an individual did something in the system and be able to prove it.
Basically, the recorded logs are proof of compliance and operational integrity that identify areas of non-compliance by providing information for audit investigations. In simple words, the audit trail provides a baseline for analysis or an audit when initiating an investigation. In this case, recorded data could be crucial, especially where lawsuits are involved.
The purpose or importance of an audit trail is more, depending on the types of organization and its requirements, i.e. a company can use the audit trail for historical evidence, future budget planning, tax or other audit compliance, risk management, and more. Indeed, an audit log can provide the information that you specifically need when dealing with confidentiality, integrity, and availability.
With such crucial benefits, audit trail which is also called audit log is already being used in many countries such as the US, Canada, Europe, and few others with the same objective, i.e. monitoring and detecting security incidents and offering ease to employers through recorded logs data analysis.
Practical challenges associated with maintaining/managing an audit trail
Though the audit trail is highly likely to benefit both businesses and the economy, the path ahead is not so easy. There are so many complexities that businessmen can face while maintaining or managing an audit trail. Among them, a large volume of recorded logs could be one of the problems that may trigger a headache for small or medium-sized companies as hundreds to thousands of logs on a daily basis could be lengthy to store as they increase in size. This ultimately leads to increased storage costs. Also, it is yet not clear how long it is necessary to keep the records, which can cause pain in the neck for businesses.
Generally, accountants do memorandum entries to keep note of future transactions or transactions which generally do not have any significant financial impact. But in the case of audit trail, it needs to create multiple logs for such transactions, i.e. at the time of creation, reversals, and cancellation. This may create confusion for the auditor or the external agencies.
There are sectors where the selling price of goods is extremely volatile like coal, chemicals, and plastic raw materials and are market dependents. In such cases, the price is determined by the higher authority where the accountants are kept out of the loop, though accountants are asked to create the bill on a standard price and then management negotiates the final price and the final bill is generated. In such scenarios, there are multiple edits in the transactions, which may create confusion/problems at the time of tax assessment or audit.
The audit trail captures every addition, deletion, or modification of the transactions. So, to avoid unnecessary edits, deletions, or modifications to the transaction, skilled manpower is required, which will directly increase the labor cost.
To introduce an audit trail in the system, it needs to revamp the methods of accounting, the technology-driven infrastructure, and the working methods of employees. This would be the biggest challenge for the industry.
The writer is Founder & Chairman, HostBooks Ltd.