Mandating audit trail has invited mixed reactions from business management software players and MSMEs alike in the last one year owing to the complexity of understanding the implementation and adoption of best practices. However, this move over time has become more critical to bringing heightened transparency, ensuring compliance with regulations and mitigating fraud. The Ministry of Corporate Affairs (MCA) has recently mandated the ‘audit trail’ requirement from 1 April 2023, which means 2.3 million MSMEs who are registered with MCA are now mandated to record the audit trail of all their transactions end to end.
While the adoption of the audit trail, things are expected to be manageable for large corporates due to their financial strength, technological maturity, and ability to adopt these changes faster, however, smaller & medium businesses are going to feel the heat of this implementation due to a lack of technical know-how and availability of skilled resources to implement the change.
Learning from the journey of some of the critical policy implementations of the past, the way e-invoicing was introduced in a phased manner for businesses of various sizes, allowed businesses to change and adopt systematically. Similarly, audit trial should have been implemented with a similar approach or at least made mandatory for businesses with certain turnover in phase 1 instead of mandating it for all. Successful implementation of the ‘Audit Trail’ requires institutional efforts to engage, align and build awareness with the whole business community.
Dwelling deeper into the scenarios of audit trail functionality, it is important to understand that businesses today use multiple technology solutions for different processes from several players, and data flows through various systems, and in such a scenario, how effectively the audit trail will work is still a question mark because these systems may not communicate with each other. The law expects all transactions to have footprints to backtrack, and with multi-brand SaaS solutions, the audit trail will continue to remain a technology challenge.
To overcome these challenges, some preparatory actions therefore, become important:
• It is important to work with the various trade bodies to hold knowledge and training sessions for software companies and business owners to get them up to speed.
• A pilot to validate the maturity of market is critical to unearth any technical issues or otherwise in this rollout.
• It is essential to engage, understand, and address the various concerns that remain unanswered in the present form of the regulation, such as:
o Probable issues of multiple software usage
o Airtight and clear framework and guidelines to avoid confusion and misinterpretation. One example of this can be the treatment of draft entries versus final approved entries with regard to audit trail applicability.
Additionally, as per the new law, businesses are now mandated to use software, which is audit trial compliant. To help the businessowners / Accounts / CA communities further, it is important to bring a process that endorses players who are audit trail compliant as in the current scenario it is difficult for them to ascertain with complete confidence whether the software they are using is completely audit trail compliant or not. Otherwise, lack of understanding and lack of technical knowledge can make many businesses victims of penalization for non-compliance. In simple terms, what it means for businesses is that with this law, regulators will be able to trace the history of any transaction and spot irregularities in time to manage fraud.
The author is Head – Strategy and Key Initiatives, Tally Solutions
