Audit Trail

An audit trail allows anyone reviewing the accounts to trace a figure in the financial statements back through the ledgers and journals to the original invoice, contract, receipt or bank record, and to see who entered, changed or approved it and when.

Modern accounting systems keep audit trails automatically, logging user actions and changes. Good audit trails are essential for internal control, fraud prevention and detection, external audits and regulatory compliance.

For example, if an auditor wants to verify a large expense, they can follow the audit trail from the expense line in the income statement to the journal entry, the purchase invoice, the purchase order and the manager's approval.

Weak audit trails, such as spreadsheets that can be changed without any record, or journal entries without supporting documents, make errors and fraud harder to detect. Many regulations require companies to keep records for a minimum number of years, and to keep audit trails that cannot be altered.