Meaning

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

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

The process of Audit trail

Audit trail shall include chronological record or steps to begin transaction and bring to its completion. Conducting audit trail of invoice issued by vendor would be simplified process. Let’s look at the process of audit trail:

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

  1. The buyer asks for quotation from suppliers along with payment terms and conditions.
  2. The buyer makes the purchases from suppliers on account.
  3. The buyer receives the inventory/purchases.
  4. The buyer checks the purchases made for quality he ordered and decides whether to accept the order in partial and full.
  5. The buyer makes purchases return for purchases which 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 on followed through accounts payable. This would get settled through 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

For understanding audit tracing, we need to understand audit trails. Audit trails are manual or electronic documents. Audit trails records each financial event or procedures to provide support of evidence to the transaction.

Basically, it creates layer of evidential support in confirmation of financial transaction. The auditee uses various types of audit trail to provide historical record.

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

Importance of audit trails

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

  • User Accountability:

User is a person with access to system. To implement 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.

  • Reconstruction of Events:

The first step of reconstruction of 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 the detection of problems and the reduction of threats such as hacking, system failures, etc. In a non-technical way and in purely audit purposes, the audit trail helps in verifying authorization, recording, safeguarding, and verification aspects of auditing.

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

Unauthorized access is a serious problem for most systems. The regulations, therefore, have mandates for the security of information and to maintain proper confidentiality. Audit trails of user path help to safely record and preserve personal and financial information.

  • As management tool:

Audit trails are 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 financial data of the company, the audit trail is the best way to determine if any information is missing. This also helps in identifying if any appropriate actions or steps need to be taken.

  • Compliance:

In every countries, certain laws and regulations surround how the businesses would perform and what laws it would have comply for. The regulations require the businesses to maintain strong and accurate audit log and trail system.

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

  • 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.