Introduction

With the Ministry of Corporate Affairs (MCA) making audit trails mandatory in accounting software, companies now face stricter compliance requirements in maintaining transparent and tamperproof financial records. Audit trails ensure that every financial transaction—whether created, edited, or deleted—is traceable.

Alongside this, strong internal controls help companies safeguard assets, prevent fraud, ensure accuracy of financial statements, and comply with statutory requirements.

This guide explains the MCA mandate, what an audit trail is, why internal controls matter, and how businesses can implement both effectively.

What Is an Audit Trail?

An audit trail is a detailed log that records every activity performed in the accounting system.

It captures:

• Who performed the action

• What action was taken

• When it was performed

• Changes made before and after the action

Audit trails help create a transparent financial environment and prevent manipulation of records.

MCA Mandate on Audit Trails (2024 Update)

MCA requires that:

• All companies must use accounting software with a built-in audit trail feature

• Every transaction must be recorded with date and user identification

• Any editing or deletion must be logged

• Audit trail must be enabled and not tampered with

• Audit trail records must be preserved for minimum 8 years

This requirement applies to all companies, including private, public, small, and OPCs

Why Audit Trails Are Critical

1. Prevents Fraud and Manipulation

By capturing every change, audit trails make it difficult to hide irregularities.

2. Ensures Transparency

Management and auditors can trace transactions back to their origin.

3. Strengthens Compliance

Helps in statutory, tax, and internal audits and avoids penalties for non-compliance

4. Enhances Data Accuracy

Enables detection of incorrect or unauthorised entries.

What Are Internal Controls?

Internal controls are policies, procedures, and systems designed to:

• Protect assets

• Ensure accuracy of financial records

• Promote operational efficiency

• Prevent fraud

• Ensure compliance with laws and regulations

Strong internal controls complement audit trails, creating a reliable financial environment

Types of Internal Controls

1. Preventive Controls

Aim to stop errors or fraud before they occur.

Examples:

✔ Segregation of duties

✔ Access restrictions

✔ Approval hierarchies

2. Detective Controls

Identify errors or irregularities after they occur

Examples:

✔ Reconciliations

✔ Internal audits

✔ Variance analysis

3. Corrective Controls

Fix issues once detected.

Examples:

✔ Adjusting journal entries

✔ Updating internal policies

✔ Restoring corrupted data

How Companies Can Implement Effective Audit Trails & Controls

1. Use MCA-compliant accounting software

Choose software like Tally Prime, Zoho Books, QuickBooks, or SAP with audit trail functionality.

2. Restrict user access

Provide role-based permissions to avoid unauthorised entries.

3. Enable maker–checker system

A different person should approve transactions entered by another.

4. Perform regular reconciliations

Bank, vendor, debtor, and inventory reconciliations help detect discrepancies early.

5. Conduct periodic internal auditss

Review audit trail logs and internal controls to ensure compliance.

6. Train employees

Educate staff on data integrity, fraud prevention, and compliance obligations

Conclusion

Audit trails and internal controls are no longer optional—they are essential for compliance, accuracy, and fraud prevention. With the MCA mandate now in force, businesses must adopt robust accounting software and implement strong internal control systems to ensure financial transparency and reliability.

Bisways Consulting Group assists companies with internal control setup, MCA compliance, audit trail implementation, and financial system optimisation.