Audit Trail

What is an audit trail?

An audit trail is a line-by-line record of trade details, accounting, and other financial information that can be traced to its specific source. Audit trails are often used to verify and track various transactions for organizations. These transactions could include purchases, sales, revenue, net earnings, and expenses. Documents within an audit trail include business invoices, written estimates, purchase orders, and any emails with transaction details.

Maintaining a financial audit trail report is often a regulatory requirement and is seen as an accounting best practice depending on the financial domain. Organizations typically use audit management software to streamline their audit processes and comply with regulations or internal policies. 

The most common industries that conduct audit logs are:

• Financial
• Accounting
• Healthcare and medical organizations
• IT industries
• E-commerce 
• Universities

Audit Trail Software

Software that mention audit trail as a feature or term.

Xodo Sign

Stampli

Dropbox Sign (formerly HelloSign)

Sage Intacct

BlackLine Financial Close Management

Fastpath

Audit trail examples

Any type of audit trail one conducts will typically be more or less the same, however, these common examples can be used to better understand what an audit trail is.

• When dealing with home buyers, a mortgage lender will likely conduct an audit trail to determine where the down payment funds came from. This type of audit logging will include bank statements that show the funds being deposited.
• When a business needs to purchase a new vehicle for deliveries, the business creates a purchase order with the type of vehicle needed and the price range. Once the delivery vehicle is purchased, the auto dealership gives a bill of sale that details the vehicle type, terms, and amount. 

Benefits of audit trails

When done correctly, conducting audit trails can lead to many benefits. Some of these benefits include:

• Fraud protection: The primary purpose of an audit trail is to prevent fraud, as they help businesses have better control over what’s happening with various details regarding their organization. Audit trails also mitigate internal fraud, while also reducing external threats by maintaining tight control over finances.

• Stress-free audits: Publicly held companies are mandated to have an independent, third-party source conduct an audit once a year. Having a proper record in the form of an audit trail makes this easier and less stressful. When all financial details and transactions are kept within the trail, the auditing process will be faster and less money will be spent on fees. 

• Increased efficiency: When a business needs to quickly find financial information, having a comprehensive audit trail saves everyone time and energy searching through the books. All of the information will always be accessible when it’s needed.

• Understanding compliance requirements: Compliance standards vary from industry to industry, but being aware of the requirements and maintaining an audit trail helps businesses avoid a loss in revenue and any additional fines.

• Disaster recovery: If an unexpected crisis occurs, having a comprehensive audit trail is like having insurance. While it may not be needed for day-to-day operations, business will always be glad they created one in the event of a disaster. If a severe weather incident were to occur, this record of business activities, expenses, income, and costs can assist in overcoming a possible business-ending disaster.

• Investment and loan positioning: When an organization seeks out investors to put money into the company, the investor will more than likely ask to see the organization’s audit trail before making a decision. Plus, a loan officer will always check if a company is financially secure before issuing a loan. Having accurate financials is beneficial in both cases.

Basic elements of audit trails

A standard audit trail consists of specific financial details. Typically, these basic audit trail requirements include:

• The timestamp of the purchase
• The purchaser
• The time of the sale
• The location of the sale

In its simplest terms, an audit trail is extremely similar to a grocery receipt. When a dozen eggs are purchased at a grocery store, the receipt is the entire transaction record. 

Audit trails best practices

When building an audit trail, there are specific best practices to follow to ensure it’s done properly.

• Typically an audit trail begins with an invoice receipt of purchase.
• The trail must include a chronological list of steps that took place for the transaction to begin and bring it to completion.
• If possible, audit trails should be maintained for the life of the records. These trails can be highly beneficial in historical reporting and solving problems that may arise in the future.
• Because storage space may be limited, businesses should only collect useful and necessary information in the audit trail.
• All audit trail information should be stored in a secure location and regularly backed up to avoid losing records.
• Audit records should be reviewed on a scheduled basis to mitigate risk as much as possible.
• Loop in IT and leadership across appropriate departments should be looped in on all audit activity for proper communication.