Article

What is An Audit Trail?

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CA Preeti Aggarwal

On January 12, 2026

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Audit Trail:

The “CCTV” for Your Company’s Accounts

Imagine you are watching a CCTV recording of a busy store. You can see exactly who entered, what they picked up, and if they put it back or changed the price tag. In the world of accounting, an Audit Trail (or Edit Log) is that CCTV camera.

Under the Companies Act, 2013, this is no longer just a “good practice”—it is a strict legal requirement. If your company uses accounting software, you need to understand how this digital footprint works.

What Exactly is an Audit Trail?

At its heart, an audit trail is a system-generated record that tracks every single transaction from the moment it is entered until it is finalized. If someone changes a number or deletes a voucher, the software quietly records:

• Who made the change? (User ID)

• When was it changed? (Date and Time stamp)

• What was the original value and what is it now? (Edit Log)

The Law: Why is it Mandatory?

The Ministry of Corporate Affairs (MCA) introduced this to bring transparency and prevent “back-dated” entries or fraudulent changes. There are two main pillars you should know:

1. Rule 3(1) of Companies (Accounts) Rules, 2014: Since April 1, 2023, every company using accounting software must use a version that has an audit trail feature. Crucially, this feature cannot be disabled.

2. Rule 11(g) of Companies (Audit and Auditors) Rules, 2014: Your auditor is now legally required to report whether your company maintained an audit trail throughout the year and if it was ever tampered with.

Practical Examples:

Example 1: The Back-Dated Entry

Suppose an accountant realizes in June that they forgot to record a ₹50,000 expense from March. In old software, they might just enter it with a March date, and no one would know.

• With Audit Trail: The software will record the transaction date as March, but the “Log” will clearly show it was actually created on June 15th at 4:30 PM by “User_Accountant1.”

Example 2: The Silent Deletion

A manager decides to delete a sales entry to reduce the company’s tax liability.

• With Audit Trail: Even if the entry disappears from the main balance sheet, the Audit Trail maintains a record that “Entry #405 was deleted by User_Manager on July 10th.” The “ghost” of that transaction remains for auditors to see.

Key Requirements Checklist

• Uninterrupted Tracking: The log must work for every transaction, every day of the year.

• No “Off” Switch: You cannot turn the audit trail off during “busy hours” and turn it back on later.

• 8-Year Retention: Just like your books of accounts, these digital logs must be preserved for at least 8 years.

Test Your Knowledge!

Question: If a private limited company has a very small turnover (less than ₹10 Lakhs), is it exempt from the Audit Trail requirement?

Answer: No. The Audit Trail requirement applies to all companies (Private, Public, One Person Company, etc.) that use accounting software to maintain their books, regardless of their turnover or size.

Final Thoughts

The Audit Trail isn’t just a hurdle for compliance; it’s a shield for business owners. It ensures that your data is reliable and protects the company from internal fraud.