Why Keep an Audit Trail in Accounting?

Posted by: Patricia Barlow Post Date: 23rd March 2016

Every business should keep its transactions transparent and easy to follow, recording each step in the process so that it can be traced back to its source. In accounting, this is known as an audit trail. So, why are audit trails so important?

Why is it important to keep an audit trail?

When I first started in an accounting role, I was told by the senior partner of the practice that the financial daybooks should read like a book.

Why leave an audit trail in accounting

Anybody who picks up the files should be able to follow exactly what has happened previously, and be able to carry on from where it finishes.

This is important for two reasons. One reason for keeping an audit trail is to be able to see what transactions have taken place, and be able to continue recording transactions into the future. This helps the accounting function run smoothly.

The other reason is as a control for the accounting department. If all transactions are recorded, it is harder for money to go missing. Tasks completed in an accounting role are open to financial fraud, and if they are not recorded correctly and nobody is keeping a track of where money is going, this makes it easier for someone to take money illegally, with limited chance of them being found out. Therefore, an audit trail minimises the risk of fraud.

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How is an audit trail kept?

Every financial transaction a business completes needs to be recorded in a daybook and then transferred into the general ledger. It shows exactly what transaction has been recorded, why it has been recorded, and what its impact has been. It also shows who has recorded the transaction.

From a compliance perspective, the source documents for financial transactions need to be filed away and retained for at least 6 years.

As well as keeping the source document, it is equally important to keep the daybooks the transactions are recorded in. This is the audit trail of where the source documents have been recorded, and where they have then been recorded in the financial accounts.

n understanding of audit trails is essential in any accounting role. This topic is covered in more depth within the AAT qualification, which gives you a thorough grounding in professional accounting.

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