Business software glossary
Audit trail
An audit trail is a permanent record of every entry in your books and every change to it, showing who made it, when, and what it was before and after. Under the Companies (Accounts) Rules, companies must use accounting software that keeps such an edit log, in force from 01-04-2023.
Why it matters to your business
An audit trail protects you as much as it satisfies the law. When an invoice amount changes, a receipt disappears or a stock figure is adjusted, you can see who did it, when and why. It deters misuse by staff, settles disputes with customers and vendors, and gives your CA and auditor confidence in the numbers. For companies, it is also a statutory requirement that the auditor must report on.
How it works
Every time an entry is created, changed or cancelled, the software writes a record that cannot be edited or deleted. A good record answers five questions:
| Question | Example |
|---|---|
| What changed? | Tax invoice INV/26-27/0142 |
| Who changed it? | The billing clerk’s own login |
| When? | 14-08-2026 at 4:12 pm |
| What was it before and after? | Quantity 3 → 2, total ₹1,77,000 → ₹1,18,000 |
| Why? | “Customer returned one unit before dispatch” |
If the same invoice is changed again after GSTR-1 is filed, both changes remain visible, and your accountant can see that a credit note or amendment is needed.
Common mistakes
- Shared logins. An audit trail that says “admin” for every entry cannot tell you who did what. Give each person their own login.
- Deleting instead of cancelling. An issued invoice should be cancelled, keeping its number, or corrected with a credit note, not deleted.
- Changing closed periods. Lock your books once a month’s returns are filed, so later changes need a deliberate unlock with a reason.
- Relying on backups alone. A backup shows what the books looked like on a date. It does not show who changed what in between; only the audit trail does.
Questions about Audit trail
Is an audit trail mandatory for private limited companies?
Yes. Every company that keeps its books in electronic form must use software that records an audit trail of each transaction and an edit log of each change, for financial years starting on or after 01-04-2023. The rule applies to companies; proprietorships and partnership firms are not covered by it.
Can the audit trail be switched off?
Not for a company. The rule requires that the audit trail cannot be disabled, and the statutory auditor reports whether it was operating throughout the year.
How long must the audit trail be kept?
For as long as the books themselves must be kept, which is eight years for a company under the Companies Act, 2013.
What does the auditor check?
Whether the accounting software has the audit trail feature, whether it was operating for all transactions throughout the year, whether it was tampered with, and whether it has been preserved.
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