Trails are usually fun exploration activities, but that context completely shifts when it relates to audits on your financial documents. These audits involve going through multiple documents, locating every change made to each one, and preparing a detailed list of these changes to present during an audit.
That’s where a specific audit trail can come in handy, improving some of the most essential factors that help your business run well—smooth compliance, tight security, stress-free auditing, and much more. Read on to understand the basics of an audit trail, its importance, and how you can benefit from it.
What is an audit trail?
An audit trail is, essentially, proof of all the changes made to your financial data. It’s a list that displays the history of a document, from creation and modification to deletion. An audit trail is primarily put together to prove that this information is verified, and it’s one of the best practices that your business can follow.
These sequential logs of your transaction history can be useful for several reasons. Storing records with an audit trail ensures that your business is compliant with existing regulations. This is especially helpful if your country requires businesses to maintain an audit trail to increase transparency and reduce fraudulent activities. Using an audit trail, you can verify your revenue, review your transactions, and redo your calculations if there are any inaccurate figures. You can even analyze your gains and losses when you’re able to track additional charges (like late or recurring fees) that may not have been included while initially adding the records.
It’s not just a financial summary of your business; an audit trail has evidence in the form of receipts, bank statements, and more, which supports and adds credibility to the information mentioned in your financial summary.
Benefits of an audit trail
Tracks user activities
With an audit trail in place, you can keep track of every action taken by a user in your organization, based on the records of the changes made to a transaction. You will know if any unwarranted user has access to information that otherwise shouldn’t be accessed by them. If you’re using accounting software equipped with user control features, you can easily restrict sensitive information to only authorized personnel.
More trust = more investments
Investors are bound to look into your business performance and financials before choosing to provide funding. For example, if you’re looking to finance a construction project to build a new branch of your store, having proof of your secure financials through an audit trail would be convincing to a prospective investor.
When you have documents to prove that your records are transparent and accurate, your business’s valuation will get a boost. This will eventually improve your chances at getting loans when you’re in need, helping you raise more capital.
With an audit trail, it becomes much easier to spot inconsistencies in figures and prevent internal fraud. Any external interference and breaches can also be identified faster. Audit trails curb the possibility of transactions being backdated (transactions that may have been entered with an earlier date, and not the actual date) in your books, ensuring that the information you have is accurate.
Maintaining proper records of your documents and having an easily accessible audit trail can help you and your auditors work better. When activities can be tracked, it’s easy to send information across to your auditor to get it verified. More efficiency ultimately translates to saving time and money.
Spot lost documents
Having a trail of all your transaction changes can help you locate information that may otherwise get lost. You can uncover any data surrounding a transaction, identify errors (if any), and take measured steps to amend them. One situation where you may find yourself having to locate a document is when you are being questioned by a compliance board. At such a time, you would be able to retrieve your documents with ease.
In addition to these benefits, an audit trial encourages compliance, efficient risk management, and even helps you plan your budget through better record analysis.
How to maintain an audit trail
Audit trails begin with the source document, whether that’s an invoice, receipt, or purchase order. If you’re opting to maintain an audit trail via a ledger, you would need to attach the physical documents along with it as proof. Instead of doing it the manual way, letting your software do the work for you will make things a lot easier because every change will automatically be recorded when you create a transaction. This information would be kept secure for you to revisit anytime, helping you locate any discrepancies and their causes so you can consider possible solutions.
For instance, if you buy a bag from seller ABC, they would first create a purchase order to authorize the transaction. Once that’s done, you’ll receive a bill for the same. Both these documents, along with any communication related to them, will be included in the audit trail.
Maintaining an audit trail is an investment. While it comes with a host of benefits, one challenge that people may come across is having to edit transactions for multiple reasons, even if there was an entry error or a change in price, and this may make it difficult to navigate through the logs. However, this can be made a lot smoother with accounting software.
How accounting software helps with an audit trail
A smart way to tackle common audit trail challenges would be to use a cloud accounting system where you can store all your data securely. Such software would make it easier for you to create and send out documents. Take an invoice as an example, which would need details like item names, prices, and contact names. When you prefill and save any items or contact names in your software, the invoice you create later can be done faster and more accurately. This is because the item names and prices have been entered and checked previously, and all transactions that follow would have the auto-filled data ready. With good employee training programs and a smart system in place, you can sail through these changes easily.
Software systems equipped with an audit trail feature would usually store logs of any transactions and automatically capture any changes made to them since they were opened, along with the user’s identity, date, and time.
With an audit trail that’s easy to maintain and store, investing in good software is an investment worth making.
Once your audit trail is ready, your business will be compliant and audit ready. Your auditor would go through your records to check if anything is amiss before giving you insights about your business standing.
Maintaining an audit trail comes with a host of benefits, right from compliance to curbing fraud. Zoho Books is a financial platform that will create an audit trail for you, helping your business stay prepared at any time. Keeping a trail of your business activities and getting audit ready has never been easier!