Category
Accounting

Why a Comprehensive Audit Trail is a Must-Have Resource for any Organization

A computer screen showing financial data representing an audit trail

When someone hears the word “audit”, the first thought that often comes to mind is a pile of receipts and documents. But an audit trail is so much more than just a “pile of documents”. It’s an important record that can be traced back to its source. An audit is the golden standard when it comes to verifying transactions, searching for fraud, or identifying abnormal transactions. It is an invaluable tool for businesses to maintain healthy and accurate financial records year-over-year.

What is an Audit Trail?

An audit trail is simply an electronic or a manual record that can be used to verify and track accounting transactions. It is used to document the complete transaction history within an organization. The audit trail keeps financial processes intact, as it enables and facilitates the financial processes of an organization.

How Can Creating an Audit Trail Help Your Business or Organization?

User accountability

Ask any business manager about how they keep a comprehensive record of everyone’s actions in the company, and they will clench their teeth and admit it is very frustrating. With a comprehensive audit trail, however, one can view a file’s history at a glance, including who seen it, interacted with it, shared with, downloaded it, and even where it was moved. The strongest organizations establish and maintain a meticulous audit trail.  Additionally, strong audit logs help to enforce individual accountability, since team members understand that whatever they do can easily be traced back to them.

Implementing an audit trail will inspire accountability and encourage users to conduct transactions according to company-wide policies, which deters inappropriate use of company resources. A well-implemented audit trail system allows for all actions of a user to be recorded and tied to their unique identity, which has a lot of benefits, including:

  • Transparency of records,
  • Records for compliance,
  • Record integrity, and
  • Security of sensitive or vital information

Every organization has some forgetful employees who have a habit of missing transactions or making mistakes. With an audit trail, a manager can spot where there is a deficiency of accountability, and work with employees who may need additional training to improve overall performance.

Business security and compliance

Every corporation should comply with laws and regulations that dictate how a business should handle its business records. In the US, these regulations are known as SOX—Sarbanes-Oxley Act of 2002, while in Canada, they are known as C-SOX—The Canadian Bill 198. Under these regulations, a business is expected to maintain an accurate and up-to-date audit log. Today, almost every business has an information technology (IT) department tasked with maintenance, security, and availability of records in compliance with these regulations.

An audit trail makes compliance much easier because it is at the heart of all standards and regulations. Financial compliance is one thing, but regulatory compliance is another. Both require extensive record-keeping and a talk with your accountant can help you identify where your organization stands. It is important to discuss with your accountant about your financial data security, data privacy, security transactions, and whether your business maintains enough audit trail to protect your business from regulatory audits.

Management tool

An audit trail is an effective tool for managing both financial affairs and business projects, but let’s focus on the financial audit trail for simplicity’s sake. A manager can easily trace which transactions have occurred and whether the transaction complies with company policies. A well-planned audit trail enables a manager to visually check on every transaction and its status without having to micromanage it.

Of course, most of the audit trails nowadays are produced electronically: the enterprise resource systems (ERPs) or accounting software assign each transaction/document a unique number, and this number remains the same even if the name of the document has changed multiple times. As the transaction moves through the process, an audit trail keeps track of the people who interact with it and lists them on the audit trail page. Therefore, a manager can easily track a transaction over its entire business cycle.

Fraud prevention

No business is immune from information and data attacks, especially in today’s environment. Recently, Colonial Pipeline made headlines as it was paralyzed by a cyberattack, which was organized by a criminal hacker group looking to collect a ransom and succeeded, causing various socioeconomic ripple effects. Although the U.S. and Canada both have strict regulations about corporate data security, determined hackers continually develop new ways to circumvent security measures and protocols instilled by even the most sophisticated firms. A way to minimize this risk is to conduct IT auditing, which allows organizations to identify various security shortfalls.

Data integrity

Data integrity means that the data remains accurate, complete, and unaltered. Whenever there is a breach in the system, an audit trail can track the breach down to the source by outlining every action taken by every user on each record right to the period when the integrity of the data was compromised. Today, data collection is very easy, but ensuring and maintaining the integrity of that data is key, since ultimately it may be used in management decision making.

So, what’s next?

Now that you understand the need for an audit trail, here is what to do next: talk to your accountant to understand whether your business has an effective audit trail process.

Remember, a strong audit trail process should:

  • Record transactions/events and produce relevant reports
  • Deny users access or the ability to tamper with data/transaction records
  • Track user actions and provide transaction transparency
  • Timestamp changes and transactions
  • Provide confidence in business decisions
  • Comply with regulations

Contact Sloan Partners LLP to Discuss How an Audit Trail Can Help Your Organization

At Sloan Partners LLP, we offer a team of skilled and highly experienced Chartered Professional Accountants who provide our business and non-profit clients with comprehensive assurance and audit services. No matter your assurance needs, we can help.

We are conveniently located in North York, close to three major highways. To schedule a consultation with one of our exceptionally knowledgeable accounting professionals, please reach out to us online or call us at 416-665-7735.

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