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What is an Audit Trail?

Malcolm Tatum
By
Updated May 16, 2024
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Historically, an audit trail had to do with being able to provide a complete history of any given financial transaction. The idea was to be able to identify each step in the process from the initiation of the transaction all the way through to the completion of the transaction. Typically, this process took place by being able to produce paper documents that showed the progress of the transaction from start to finish. Today, an audit trail also has to do with tracing data in electronic form as well, with the transactions not necessarily limited to financial data.

An audit trail of any type will include an attempt to establish a chronological list of steps that were necessary to begin the transaction as well as bring it to completion. They can be very simplistic or extremely complicated, depending 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.

Beginning with the receipt of the invoice, the document is tracked through Accounts Payable, all the way through to the issuance of a check or electronic payment to settle the debt. At the same time, creating an audited trail to allow for the reconstruction of a manufacturing process may contain many more steps and become very difficult to follow.

An auditor may choose to begin the process of creating an audit trail from either the beginning or the completion of the transaction under consideration. Often, beginning the audit process with the most recent completed phase and working backward is an efficient means of establishing the trail. However, when both the beginning point and the point of completion are well established, it is possible to approach the trail from both ends simultaneously, simply filling in the steps occurring between the start and finishing steps to the transaction.

Using an audit trail can often be an effective tool in managing the financial and other resources of a business or organization. The process of identifying the trail may in fact help to identify steps within the process that were unnecessary and that can be eliminated in future transactions. Another important application of this process is that it can uncover attempts to manipulate the financial profile of the entity, perhaps in an attempt to cover up the fact that funds are missing or were misappropriated in some manner. Basically, the audit trail is a helpful device to ensure that transactions are conducted smoothly and honestly, with the least amount of necessary steps employed in the process.

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Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon189980 — On Jun 25, 2011

Try document management software. Docsvault is an affordable solution in the US for managing your documents and helps you to organize your paperwork and receipts.

By abundancer — On Jan 30, 2011

@donbri5 -- there are a variety of audit trail software products that you can order. These range from invoice/receipt software to ledgers online as well as audit checklists. These are easy to use once you decide what best fits your needs. You might want to consult an accountant as well if you often have trouble around audit times.

By donbri5 — On Jan 29, 2011

Good article, very straight forward and easy to understand. I know that audit trails are necessary, but they're not always the easiest for me. I have found it challenging to keep my paperwork and receipts organized. Any one have a suggestion on how to make it easier when it comes time for that audit?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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