As India strives towards a new age of financial transparency and efficiency, fraud and corruption still pose big threats to economic advancement. In an effort to combat this reality, the Ministry of Corporate Affairs will require more disciplined recording of financial transactions by companies, including a detailed edit log of every change made in account books with proper dates, business network CNBC reported.
Audit trails are effective at detecting and preventing fraud because they allow businesses to examine each activity captured on the financials and look at supporting documents that help determine whether or not the transaction is valid. The United States, Canada, and many European countries already require detailed audit logs in accounting books. When searching for a damaged or lost piece of information, audit trails allow businesses to recreate transactions for certain periods.
These benefits come at a cost, however. The level of storage needed ranges between businesses, but the more storage a business needs, the more expensive it is going to be. Auditors also tend to need to create multiple logs and edits when tracking business transactions. When tax season rolls around, this can create problems ensuring that every step taken was made correctly.
Many internal auditors consider audit trails vital to fighting fraud and corruption. The audit trail requirement is part of a series of moves to strengthen financial reporting in India, including new banking regulations and stricter rules for internal auditing.
The Indian government said that this rule will only be applicable beginning with the reporting period for the first fiscal year starting April 1, 2022. The deferment follows complaints from small businesses that the timeline for implementation was going to be too short, creating a compliance burden and disrupting businesses. 