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Audit trail - What is an audit trail?

Definition: the documents, computer files, and other records that are examined during an audit, which show how transactions are handled by a company

Starting and maintaining solid, professional accounting practices is essential for the growth of a business. Make sure yours are in order with Debitoor.

An audit trail can be either a paper or electronically based trail that provides documented history of a transaction within a company. An audit trail allows an auditor to trace the financial data from the general ledger to the source document (invoice, receipt, voucher, etc.) and view the full process of a given transaction.

The presence of a reliable and easy to follow audit trail is an indicator of solid internal controls instituted by a firm, and forms the basis of objectivity.

Conversely, an audit trail with missing documents may be an indication that a company is not adhering to proper accounting practices.

The process

An audit trail will include the chronological list of steps that were required in order to begin a transaction and bring it to completion.

An audit trail can be simple or very complex depending on the number of steps involved in the particular transaction. For example, conducting an audit trail on an invoice issued by a vendor would be a relatively simple process.

An audit trail usually begins with the invoice receipt. The transaction is then followed back through accounts payable and finally through to the check or electronic payment made to settle the amount. However, an audit trail may contain many more steps and be difficult to follow, depending on the company and the transaction.

As a management tool

In many ways, audit trails can often be effective tools for overseeing a business or organization’s finances and other resources.

Audit trails are a reliable way to find out whether transactions are being conducted smoothly and truthfully, while keeping the least necessary number of steps in the process.

If discrepancies are discovered in a company’s financial data, an audit trail is often the best way to determine where the information is missing or where improper actions took place.

Audit trails in your accounts

With cloud-based invoicing and accounting software, your audit trails are visible at any time. Debitoor saves a history of each invoice, allowing users to see when it was sent, viewed, paid, and any responses or communication between you and your customer.

In other words, an electronic audit trail is automatic, allowing you to stay on top of your records.