An audit trail tracks the steps of a transaction, historically done with paper documents but now also in electronic form. It can help identify unnecessary steps and uncover attempts to manipulate financial profiles.
Historically, an audit trail was about being able to provide a complete history of any financial transaction. The idea was to be able to identify each step of the process, from the beginning of the transaction 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 is also about tracking data in electronic form, with transactions not necessarily limited to financial data.
An audit trail of any type will include an attempt to establish a chronological list of steps required to initiate and complete the transaction. They can be very simplistic or extremely complicated, depending on the number of steps involved in the transaction. For example, performing an audit trail on an invoice issued by a supplier would be a relatively straightforward process.
From receipt of the invoice, the document is tracked through Accounts Payable, to the issuance of a check or electronic payment to settle the debt. At the same time, creating an audit trail to allow a manufacturing process to be reconstructed can contain many more steps and become very difficult to follow.
An auditor may choose to start the process of creating an audit trail from the inception or completion of the transaction under consideration. Often, starting the audit process with the most recently completed phase and working backwards is an efficient means of establishing the trail. However, when the start point and end point are well established, it is possible to approach the trail from both ends simultaneously, simply by filling in the steps that occur between the start and end steps of the transaction.
The use of an audit trail can often be an effective tool in managing a company’s or organization’s financial and other resources. The trail identification process can indeed help to identify unnecessary process steps that can be eliminated in future transactions. Another important application of this process is that it can uncover attempts to manipulate the entity’s financial profile, perhaps in an attempt to cover up the fact that funds are missing or appropriately misappropriated in some way. Basically, the audit trail is a useful 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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