For finance teams and managers, keeping precise accounts of financial transactions is vital, and this is where an audit trail comes in.
An audit trail is an account of all transactions and events within a system or application. It provides full descriptions of any modifications made to data and the people who created these changes.
This article will discuss the different types of audit trails, the benefits and challenges, as well as the best ways to manage audit trails.
The Definition of an Audit Trail
An audit trail is a historical document of all the events and transactions that take place within a system or an application. It keeps a document of each modification made to the data, the person who performed the change, and the date it took place.
Audit trails are created automatically and may include details such as user IDs, dates, and timestamps, as well as the type of the action performed. Audit trails are a crucial tool for businesses that need to monitor any changes to sensitive data and ensure compliance with the laws, and also detect and stop fraud.
Types of Audit Trails
There are various types of audit trails that companies can utilize to monitor the changes in their operations and ensure that they’re maintaining precise documents. These include:
- User Audit Trails: This kind of audit trail tracks every action performed by a particular user, including logouts, logins, changes to data, and access to files.
- System Audit Trail: A system audit trail documents all activities and transactions that take place within a specific system, including any changes in the software and system settings.
- Application Audit Trail: This audit trail documents all actions that are taken within a particular application, including any changes to the data, reports produced, as well as user activities.
- Database Audit Trail: A database audit trail tracks every change to a particular database, which includes data additions, modifications, and deletions.
Why Having an Audit Trail is Important
The maintenance of an audit trail is crucial for business for a variety of reasons. Here are some examples:
- Compliance: A lot of regulations require companies to keep exact documents of financial transactions, like the Sarbanes Oxley Act (SOX) and the Payment Card Industry Data Security Standard (PCI DSS). A trail of the audit history will help companies demonstrate that they are in compliance with these laws.
- Transparency: Audit trails provide the public with a clear record of any changes to data. This makes it easier for companies to spot discrepancies or errors and then take corrective actions.
- Fraud detection and prevention: An audit trail can assist companies to identify and eradicate fraud by keeping a complete log of every change in data and the activities of users.
Examples of an Audit Trail in a Financial Setting
To gain a better understanding of the importance of an audit trail, we will take a look at an example from the financial sector.
Imagine that a financial analyst finds that there is a major discrepancy between bank reports and the general ledger. An audit trail could be used to keep track of every transaction and trace the origin of the issue that causes the difference.
Analysts can determine the person who made the edits, the date, along with the information that was altered.
Challenges in Maintaining the Audit Trail
Keeping an audit trail for businesses is highly important, but might pose some challenges. Here are a few instances:
- Technical complexity: Audit trail records can be complicated to prepare and maintain, which requires special software, systems, and procedures.
- Storage limitations: Audit trails for data storage are usually huge in volume, making it difficult to store and manage.
- Ongoing training: Maintaining an efficient audit trail requires continuous education and training for employees in order to make sure they know the importance of precise record-keeping, as well as how to build an audit trail and keep it in a timely manner.
However, you can bypass any of these challenges by automating your audit trail to bypass any of these challenges. Most companies, however, do not have the technical bandwidth to develop such a system.
Using AR and AP automation software will be ideal if you’d like to keep an accurate, real-time, and detailed record of any transactions and financial activities. By streamlining your auditing process, you can make better decisions that’ll benefit your company’s growth.
Best Practices for Managing an Audit Trail
To ensure a reliable audit trail, companies must think about implementing these best practices:
- Review your audit trail regularly: Companies should periodically review audit trails to make sure they are correct, complete, and up-to-date. The review process must be carried out by an independent person in the auditing process.
- Automate the process: Audit trails that are manually created are often time-consuming and vulnerable to mistakes. Implementing accounts payable and receivable software will automatize the process and ensure accuracy.
- Establish access controls: Access controls must be in place to ensure that only authorized users are able to access sensitive data, and any changes in the information are documented within the audit trail.
- Set up clear procedures and policies: Clear guidelines and procedures must be developed for creating or maintaining audit trails. This involves determining what information must be included in the audit trail, how oftenit is reviewed, and who is responsible to maintain it.
- Follow audit trails and monitor them regularly: Checking the audit trail can help identify and stop fraudulent activities while also ensuring compliance with the law.
Automate Your Audit Trail with Peakflo
In the end, keeping an audit trail is vital for any business as it helps maintain accurate financial records, assure compliance with regulations, prevent fraud, and overall increase the quality of work.
There are numerous challenges in keeping an effective audit trail due to technical complexity and other reasons. Using software that automates your audit trail, such as Peakflo, can assist businesses in overcoming these obstacles, plus reaping the benefits of a precise and comprehensive audit trail.
Take our product tour and see how Peakflo can benefit your business.