6 Importance of Audit Trail You Should Know


An audit trail is a chronological record of accounting or trade data that can be traced to its source. These are used to verify and track accounting transactions and trades in various brokerages’ accounts and paths taken by the transactions in the audit.

It helps to verify the accuracy of the item. Audit trails are very useful in depicting the validation of accounting entry, source of funds, etc.

The process of Audit trail

The audit trail shall include chronological records or steps to begin the transaction and bring it to its completion. Conducting an audit trail of vendor invoices would be a simplified process. Let’s look at the process of the audit trail:

The following is the paper trail in the cycle of accounts payable:

  1. The buyer asks for quotations from suppliers along with payment terms and conditions.
  2. The buyer makes the purchases from suppliers on the account.
  3. The buyer receives the inventory/purchases.
  4. The buyer checks the purchases made for the quality he ordered and decides whether to accept the order in partial or full.
  5. The buyer makes purchases in return for purchases that are found to be defective.
  6. The buyer makes the payment in full.
  7. Any outstanding liability is carried forward to next year.

The audit trail begins with invoice receipt. The transaction is later followed through accounts payable. This would get settled through a cheque or any electronic payment in the bank account.

However, the audit trail would consist of many more steps depending on the size and nature of the transaction and the company.

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Tracing through audit trails

To understand audit tracing, we need to understand audit trails. Audit trails are manual or electronic documents. Audit trails record each financial event or procedure to provide support of evidence to the transaction.

Basically, it creates a layer of evidential support in the confirmation of financial transactions. The auditee uses various types of audit trails to provide a historical record.

Audit trails provide a sequence of financial events. They help identify areas of non-compliance by providing proof of compliance and the integrity of the employees.

Importance of audit trails

The use of an audit trail is provided records path to their origin. This provides various benefits such as transparency, defense of records for compliance, record integrity, and security of sensitive or vital information. The importance of audit trails can be emphasized in the following points.

1) User Accountability:

A user is a person with access to the system. Implementing an audit trail would promote appropriate user behavior.

This would help in the prevention of viruses, wrong use of information, and prevention of intruders. Audit trail implementation promotes the good behaviors of users. Each action of the authorized users is automatically recorded and tied to their unique identity.

2) Reconstruction of Events:

The first step of reconstruction of the event is to start with when, how, and what of the event/ This helps in proper re-enaction of events.

Visibility into information would lead to detecting problems and reducing threats such as hacking, system failures, etc. In a non-technical way and purely for audit purposes, the audit trail helps verify authorization, recording, safeguarding, and verification aspects of auditing.

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3) Intrusion detection:

The business environment attracts competition. When the competition is cutthroat, information sabotage, attacks on data, etc are common threats.

Unauthorized access is a serious problem for most systems. The regulations, therefore, mandate information security and proper confidentiality. User path audit trails help to safely record and preserve personal and financial information.

4) As a management tool:

Audit trails are an effective tool to oversee business or finances. They are useful in finding which transactions are being held effectively, smoothly, and truthfully.

This is done using the least steps of identification. If discrepancies are discovered in the company’s financial data, the audit trail is the best way to determine if any information is missing. This also helps identify any appropriate actions or steps that need to be taken.

5) Compliance:

In every country, certain laws and regulations surrounding how businesses would perform and what laws they would have to comply with. The regulations require businesses to maintain a strong and accurate audit log and trail system.

The information technology department would play an important role in the security, maintenance, and availability of records to provide auditable information for compliance with laws and regulations.

6) Identification of other problems:

Audit trail does real-time monitoring of users creating audit logs to identify lags in implementation, operation, or system. This helps in keeping the system or operator errors at bay.