What is an Accounting Audit Trail?Picture a long hall, lined with every scrap of information related to the history of a transaction. Walking down this corridor gives you (and auditors) full access to everything there is to know about the transaction, and every step it took along the way as it traveled through your company. Items along the trail include, but aren’t limited to:
- Vendor invoices
- Purchase orders
- Bills of lading/Shipping documents
- Bank statements
- Electronic payments
- Customer invoices
- Entries in the general ledger
- Emails, IMs, and other related communication between staff, vendors, and management
Having an accounting audit trail for every transaction combats errors in financial reporting by reducing the risks that come with both missing (or incomplete) data and fraud. Full transparency makes it easy for auditors to confirm your information is accurate and complete, and aid your own team in identifying areas for potential process improvement.
Why Audit Trails MatterHaving an accounting audit trail for every particular transaction combats errors in financial reporting by reducing the risks that come with both missing (or incomplete) data and fraud. Full transparency reduces “red flags” and makes it easy for auditors to confirm your information is accurate and complete, and aid your own team in identifying areas for potential process improvement. Demonstrating compliance—both legal and financial—is greatly simplified by a clear audit trail. In addition, since audit fees are generally billed by both time and task, making things as easy for the auditors as possible will save your company money during an actual audit.
Audit Trail EssentialsAn effective audit trail is built on three pillars of performance and productivity:
- Rock-Solid Internal Controls. A carefully crafted blend of procedures, policies, and workflows, internal controls are designed to improve compliance, ensure accuracy in financial statements, and reduce risk.When they are clearly written, provide reasonable contingencies for potential challenges (e.g., computer system problems, human error, process improvement opportunities), and allow for necessary adjustments as circumstances warrant, internal controls can make every aspect of procurement, compliance, and financial reporting, including audit logs, much simpler.
- Staff Engagement. From senior management down, it’s essential to ensure every member of your team:
- Understands the importance of following internal controls
- Has the necessary training and access to approved software and other tools
- Has full, unfettered access to all the information needed to request, approve, and review transaction data as needed, from day-to-day workflows to quarterly reports and annual audits
- Automation Technology. Like nearly every accounting process, your company’s audit trails are infinitely easier to manage with the aid of a centralized procurement software package on your computer system. Alone or in tandem with your Enterprise Resource Planning (ERP) and productivity software, reliable procurement software connects your entire team and tracks every step of the procure-to-pay process while providing rich data for forecasting, reporting, and yes, faster, clearer audits.You can create customized, automated workflows, and build strong internal controls to manage requests, approvals, and budgets, while gaining instant, searchable access to every source document, financial records, and related communication. Human error, invisible spend, and fraud disappear, while you gain access to new insights on your spend and total financial data transparency.