How to track an audit trail?

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An audit trail is a series of documents that support a journal entry or business transaction recorded in a company’s general ledger. Accountants or auditors follow the document trail to prove that accounting entries are timely, valid, and relevant. To follow an audit trail, accountants must identify a transaction, review supporting documents, and ensure that each account in the entry is correct. Computerized accounting software adds another layer to this process. There is often an electronic stamp that identifies which individual posted the ledger entry.

Auditing involves reviewing accounting information to demonstrate that it is accurate and correct. Certain transactions, such as those involving cash, accounts receivable, and inventory, may be more susceptible to fraud or abuse by employees. An auditor observes these transactions and follows the audit trail that details the purpose and intent of the transaction. The walkthrough allows auditors to determine if an entry is valid or not. Errors in mathematical calculations can also be discovered during this process.

Getting a transaction is the next step. Auditors must extract the original documentation of the related transaction and review the individual documents. This allows auditors to determine the date, type, and purpose of the transaction. Accountants recording transactions in the wrong accounting period are often a target for this review. Other errors may also be present during this part of the audit trail.

Once reviewed, accountants look at the company’s general ledger and other accounting books. Auditors verify accurate numbers and proper ledger accounts to ensure that the information in the documents is on the ledger correctly. If a detailed calculation is necessary for the journal entry, the auditors recalculate the information to ensure accuracy. Extremely detailed transactions may require auditors to interview the accountant who posted the transaction. This individual should initialize the documents for the journal entry as part of the audit trail process.

Electronic accounting systems provide an additional layer to the audit trail process. Most computerized accounting systems provide a snapshot record for who posted or adjusted a company ledger entry. Data includes name, data, time, description, and other information, depending on the system. Auditors can log into the company’s electronic general ledger, review these audit trails, and obtain transactions from this data. Auditors can more easily follow the audit trail when companies have this non-adjustable electronic audit trail record.

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