What Is an Audit Trail in Accounting?

Does your business have an audit trail? Businesses of all shapes and sizes can benefit from an audit trail. You can use it to cut unnecessary expenses, improve cash flow and prepare your business’s taxes. What is an audit trail exactly, and how does it work?

Overview of Audit Trails

An audit trail is a chronological record of a business’s financial transactions, including receipts, sales invoices, bank statements and other documents. It’s designed to track the flow of money from the source to the financial statements. When viewing an audit trail, you’ll see your business’s financial transactions as well as supporting information about those transactions.

How Audit Trails Work

Audit trails work by providing information about financial transactions. There are different types of audit trails, some of which contain more information about financial transactions than others. A complete audit trail, for instance, may contain the time of the transaction, the parties involved (e.g. your business and a vendor or customer), the location and the amount. Other audit trails are simpler and contain less information. Regardless, all audit trails contain information about financial transactions.

Audit trails are designed to record the sequence of events in the financial transaction process. When your business receives an invoice from a supplier, for instance, the invoice is recorded in the accounts payable ledger, along with the date, amount and other relevant details.

The Importance of an Audit Trail

Some business owners assume an audit trail isn’t necessary. They believe it’s a waste of time, so they focus their time and energy elsewhere. But the truth is that all businesses can benefit from an audit trail.

An audit trail ensures the accuracy and integrity of financial information. By featuring financial transactions and supporting information, it shows that the financial transactions were properly recorded and authorized. An audit trail also allows auditors to verify the completeness of financial statements and detect any errors, fraud or irregularities.

Many businesses use audit trails internally. With an audit trail, you can go back and review all of your business’s financial transactions to ensure they are correct. Some financial transactions may contain discrepancies. It only takes a single discrepancy to throw off your entire business’s books. An audit trail can help you can find and fix discrepancies so that your business has cleaner books.

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