Audit trail and edit logs for accounting software in India

Article
06/19/2023

Business Central complies with the new Indian tax legislation guidelines about accounting software by recording an audit trail of all transactions. It also creates an edit log for each change that's made to an account. This log records the date when the change was made.

The legislation

Principal notifications No. G.S.R. 239(E) dated March 31, 2014, No. G.S.R. 205(E) dated March 24, 2021, amended vide notification G.S.R. 247(E) dated April 1, 2021, and amendment notification G.S.R. 624(E) dated August 5, 2022, state that, as of April 1, 2022, all businesses that use accounting software to maintain books of accounts should have an audit trail feature that includes the following functionality:

Recording an audit trail of every transaction
Creating an audit log of every change that's made in the books of accounts
Capturing the date details about when changes are made
Ensuring that the audit trail can't be disabled

Additionally, the rules state that the audit trail feature should meet the following conditions:

It has been used throughout the year for all transactions that are recorded in the software.
It hasn't been tampered with.
The audit logs that were generated have been preserved by the company.
The books of accounts and other relevant books and papers that are maintained in electronic mode must remain accessible in India at all times.

Compliance

Compliance 1: Recording an audit trail and creating an audit log

Under new guidelines of the Companies Act that specify how account books must be kept in electronic format, every company that uses accounting software to maintain its books of accounts must use only accounting software that has a feature for recording an audit trail. For compliance, the system must record and trace the data sources in the audit trail.

Business Central is fully compliant with the requirement to record accounting data. The G/L Register page provides details about each transaction, including the register number, the creation date and time, the user ID of who created the transaction, and its source code. The General Ledger function on the G/L Register page fetches the financial transaction entries that have been posted in the general ledger (G/L). This function opens the General Ledger Entries page that's related to the specific G/L register and shows transaction details.

Additionally, you can run the Find Entries function to show all other related entries and source documents. For more information, see Design Details: Accounts in General Ledger and Voucher Transaction.

For other data, you can use the Change Log function to track specific types of changes that are made to tables and fields. Changes that can be tracked include inserting, modifying, and deleting key operations. Note that when you enable change tracking for any table, the impact on performance might vary, depending on the table's category. Change tracking can also increase the size of the database. When you track changes for a table or field, a record of every change to that table or field is stored on the Change Log Entries page. You can use this feature to track changes in any data in the system. For example, companies that use Business Central to maintain books of accounts are fully compliant with the new notifications and can track transaction data to the source. For more information, see Auditing Changes in Business Central.

Note

This guideline is a general guideline and can vary, depending on the specific business scenario.

Compliance 2: Retain books of accounts in the original format

The books of accounts and other relevant books and papers are retained in one of the following formats:

The format that they were originally generated, sent, or received in
A format that accurately presents the information that was generated, sent, or received

The information in the electronic records will remain complete and unaltered.

Transactions that are posted in Business Central remain complete and in the format that they were initially generated in. Therefore, Business Central includes no process for changing the format or content of a posted transaction.

Compliance 3: Preserve branch transaction information

The information that's received from branch offices isn't updated and is kept as it was originally received from the branches.

In Business Central, changes can't be made to posted financial data. Therefore, financial transactions can't be edited after they're posted. However, they can be reversed by using the Reverse Transaction function. Data that's sent from a branch to a head office can't be changed by the head office. However, you can adjust the posted transaction through the specified mode of the transaction, such as a credit memo or general journal, that was posted in the ledger of both the branch and the head office.

Compliance 4: Display electronic records in a legible format

The information in the electronic record of the document is shown in Business Central. Business Central enables at least one output component per file. Typically, Business Central contains multiple file output components of different types. Examples include XML, XLSX, DOCX, JSON, TXT, and PDF.

Business Central ensures that, at the very least, every transaction record can be exported or opened in Microsoft Excel format. By using a configurator in the Data Exchange Framework, users can define which file format is used for specific entries.

Compliance 5: Maintain a proper system of storage for electronic records

A proper system for storing, retrieving, displaying, and printing electronic records exists. These electronic records must not be disposed of or rendered unusable, unless those actions are permitted by law. Provided that a backup of the company's books of accounts and other books and papers is maintained in electronic mode, even in a location outside India, it will be kept on servers that are physically located in India.

Business Central can be deployed into a subset of Azure datacenters. Azure is generally available in datacenters and geographical locations around the world. Business Central will automatically be deployed in a defined region or datacenter where its customer data will be stored. By default, Indian companies will be deployed to the Indian datacenters. Although Microsoft might replicate data to other regions for data durability, customer data isn't replicated or moved outside the geographical location. If an Azure region-wide outage occurs, Microsoft provides business continuity and disaster recovery for the production instance of Dynamics 365 software as a service (SaaS) applications. Paired regions reside in the same geography as their enabled set to meet data residency requirements for tax and law enforcement jurisdiction purposes. For more information, see Service overview and Service Compliance.

Compliance 6: Information for filling out the annual financial statement

On an annual basis, the company will provide the following information to the Registrar when it files a financial statement:

The name of the service provider.
The set of Internet Protocol (IP) addresses of the service provider that are used to deliver the Business Central service.
The location of the service provider, wherever applicable.
The location where the books of accounts and other books and papers are maintained in the cloud. An example is the address that was provided by the service provider.
The location of the service provider, if it's located outside India, and the name and address of the person who's in control of the books of account and other books and papers in India.

This information is protected by server security. We don't recommend that you include the information in any publicly available financial report. However, you can manually add this information to any specific report.

Compliance 7: Books of accounts must remain accessible in India

Under new guidelines of the Companies Act, the books of accounts and other relevant books and papers that are maintained in electronic mode must remain accessible in India at all times, and their backup must be kept in servers that are physically located in India on a daily basis.

Business Central is fully compliant with the requirements.

The books of accounts and other relevant books and papers that are maintained in electronic mode in Business Central are accessible in India at all times for subsequent reference.
Business Central provides that the backup of the books of accounts and other books and papers of the company that are maintained in electronic mode in Business Central are kept in servers that are physically located in India on a daily basis.
Business Central is automatically deployed in a defined region or datacenter where customer data will be stored. By default, Indian companies will be deployed to the Indian datacenters. Although Microsoft might replicate data to other regions for data durability, customer data won't be replicated or moved outside the geographical location.
Administrators of a Business Central tenant can check where the database is deployed through Dynamics 365 Business Central admin center, by looking at the Azure Region field.
Microsoft provides business continuity and disaster recovery for production instances of the Business Central SaaS application if an Azure region-wide outage occurs.
Databases are protected by automatic backups that are kept for 28 days. The backups include data from the database's production and sandbox environments. Administrators of a Business Central tenant can't directly access or manage these backups, because they're automatically managed by Microsoft. In Dynamics 365 Business Central admin center, an administrator can view evidence about which moment Business Central has successful backups from, for all dates in a given period, together with the system screenshot that indicates the default backup frequency. Administrators can also restore their environments to a specific point in time in the past by using Dynamics 365 Business Central admin center. For more information, see Restoring an environment in the Admin center.
If an administrator must export a database outside of cloud storage, they can run the Create database export from Dynamics 365 Business Central admin center at any time. In addition, administrators can access the full export history in the same admin center.
If administrators of Business Central delete the environment for any reason, they can recover the environment and data as needed, because it isn't permanently deleted immediately. The environment can be recovered during a retention period that lasts seven days. For more information, see Delete and recover environments.

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