Audit trail

Short description: An audit trail is a detailed record that provides documentation of data modifications resulting from a business process.

Learn more: An audit trail is a chronological record that captures the events and history related to specific transactions or ledger entries. It helps support a company’s financial statements by tracing the progression of transactions in a clear manner.

A general ledger audit trail should capture every transaction conducted by a company along with all associated documents, whether in paper or electronic form. This may encompass invoices, purchase orders, expense reports, and any additional documentation that can verify the origin and details of the transaction.

An audit trail showcases a timeline of actions, starting from the initial order to the final sale. For instance, tracking an invoice from a supplier usually involves a straightforward process, beginning with the receipt of the invoice, followed by its movement through accounts payable, and culminating in the issuance of a check or electronic payment.

Both external and internal auditors utilize the audit trail to monitor transactions within the accounting system. Additionally, accounting personnel use it to identify errors and understand the origins of discrepancies in financial reports. In many financial sectors, maintaining an audit trail is not only best practice but also a regulatory obligation.

Order audit trails supply essential evidence and insights for regulators when there is suspicion of fraud or illicit financial behavior. They are instrumental in verifying various transaction types, including those in accounting and brokerage accounts. Audit trails aid in validating the accuracy of accounting entries, tracing the source of funds, or assessing trades. 

All publicly traded companies are subject to financial audits as part of their reporting duties. Without audit trails to substantiate financial data, the credibility of a company’s financial statements would be highly questionable. 

The main issue for companies is the time and cost required to maintain an adequate audit log, especially if automated. Logs can become difficult to navigate and store as they grow in size. 

So, an effective audit trail relies on three key pillars: internal control, staff involvement, automation.