Audit trail has different meanings for financial statement audits and software controls. The purpose of audit trails is to reduce errors, fraud, and unauthorized user activities and enhance internal controls. In software, an audit trail may also be called an audit log.
This article defines an audit trail. We describe the purpose and importance of audit trail and provide audit trail examples. The primary focus is on the beneficial use of real-time software audit logs in financial and business applications.
What is an Audit Trail?
In auditing, an audit trail is a financial control that traces amounts back to their transaction sources for verification by auditors and the internal finance team. In software, audit trails are real-time, sequential logs that identify events or changes by specific user, timestamp, and IP addresses, or other identifying information, reducing fraudulent activity and unauthorized use.
The NIST, a government agency within the U.S. Department of Commerce, defines a security audit trail in its glossary. NIST is the National Institute of Standards and Technology.
The NIST definition of a security audit trail is:
“A set of records that collectively provide documentary evidence of processing used to aid in tracing from original transactions forward to related records and reports, and/or backwards from records and reports to their component source transactions.”
What are Types of Audit Trails?
Types of audit trails vary.
Specially-designed software assists financial and operational auditors from CPA firms and internal audit departments conducting business, non-profit, or governmental unit audits. Functionality includes using the electronic records audit trail data to examine source documents for selected accounting transactions.
Performing security audits, as described by NIST, is another use of audit trails.
A recent SEC rule has established the need for broker-dealers to report information to the consolidated audit trail (CAT) to regulate securities transactions, including cross-market transactions, on more than one exchange.
HIPAA medical recordkeeping requirements for protecting health information privacy include audit logs to provide an audit trail in healthcare.
What is an Audit Trail Purpose?
The purpose of audit trails is to reduce fraud, material errors, and unauthorized use and enhance internal controls and data security. Internal controls are financial controls, information security, data security, IT, computer system, software, cybersecurity, and business process controls, described in the Sarbanes-Oxley Act of 2002 (SOX) and COSO Internal Control-Integrated Framework.
Why is an Audit Trail Important?
An audit trail is important because it’s used to verify and validate financial, software, and business transactions by tracking selected user activities or accounting financial statement amounts back to the transaction, event source, and data access used to create or modify a record. An audit trail helps businesses detect unauthorized use, errors, and fraud.
How Do You Maintain the Audit Trail?
In software, an audit trail documents each user’s activity, including changes and approvals, timestamp of dates and times, IP addresses, and user logins. Record retention periods for audit trail logs will depend on government and industry regulations applicable to your business activities. Establish a company policy that’s approved by the Board of Directors.
What is the QuickBooks Audit Trail?
The first example of audit trail is the audit trail in QuickBooks accounting software. QuickBooks Online and QuickBooks Desktop Enterprise have an Audit History or Audit Trail report with filtering capabilities. The QuickBooks audit trail is an audit log, showing transactions, who made them, when they were made, and a sequential record of changes.
Only QuickBooks users with full authorization rights can view the audit trail history.
The audit log shows the perspectives of the client and accountant(s) in this linked example of audit trail records from QuickBooks Online Accountant support. You can see whether a client or accounting firm made the accounting transaction changes from the audit log.
How is Audit Trail Used in AP Automation Software?
The second example of audit trail is its use in Tipalti payables and global mass payments automation software.
Tipalti software uses audit trail best practices and 27,000+ rules, OFAC and sanctions screening to reduce fraudulent payments and payees. In Tipalti, audit trails log the activity of users and suppliers. Tipalti provides enterprise-grade financial controls, including an audit trail, to customers ranging in size from small businesses to mid-size to large companies.
AP automation software speeds workflow processing time by up to 80% and reduces fraud and erroneous payments with automated tools, including software audit trails. Tipalti add-on software works seamlessly with your accounting software or ERP system, using flat-file or API integration.
What is an Audit Trail and What is its Purpose – In Summary
In accounting, an audit trail is used to trace back to source records or transactions (like accounting entries creating financial information) in the sequence of events. In software and data security, real-time audit logs record real-time sequential user and system activities with a timestamp as events and changes to system records occur.
The purpose of an audit trail is to reduce errors, fraudulent activities, and unauthorized system access, improve internal controls, and verify the accuracy of underlying accounting transactions flowing to financial statements.