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Audit trail - What is an audit trail?

Definition: The series of documents, computer files, and other records that are examined during an audit, and show how transactions are handled by a company from start to finish.

An audit trail can be either a paper or electronic trail that provides documented history of a transaction in a company. An audit trail allows an auditor to trace the financial data from general ledger to the source document (invoice, receipt, voucher, etc.).

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

The process

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

An audit trail can be simple or very complicated – this depends on the number of steps involved with the 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 receipt of the invoice, and then the transaction is followed through Accounts payable, and finally through to a check or electronic payment made to settle the debt. 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.

All in all, audit trails are a good way to find out whether transactions are being conducted smoothly and truthfully, while keeping the least necessary amount of steps in the process.