Audit Trail

TL;DR

• A chronological record of every step and change in a financial transaction, with timestamps.
• Enables transparent review and supports regulatory compliance and external audits.
• Can be maintained manually (paper/spreadsheet) or automatically (software).

Definition

An audit trail is a record of all the steps taken during a financial transaction or process, including any changes made to the transaction and the date and time of each change. Its purpose is to provide a clear and detailed record of a transaction or process so it can be reviewed and audited by a third party.

Explanation

An audit trail documents each action in a transaction lifecycle (for example: receiving an invoice, approving it, and making a payment), recording the date and time of each step and any modifications (such as changes to the payment amount or payment date). This detailed traceability supports accurate and transparent tracking of financial transactions, which is essential for companies subject to regulatory requirements and for the conduct of external audits. Audit trails may be maintained manually (on paper or in spreadsheets) or via automated electronic systems; regardless of method, the primary objective is to preserve a clear and detailed record of all financial transactions.

Examples

Transaction workflow example

A company with a financial transaction that involves steps such as receiving an invoice, approving the invoice, and making a payment would have an audit trail that records each of those steps along with their dates and times. The audit trail would also record any changes, for example if the payment amount was changed or the payment date was delayed.

Regulatory compliance example (SOX)

For a company subject to the Sarbanes-Oxley Act (SOX), an audit trail is an essential component of internal controls because it provides an accurate and detailed record of all financial transactions.

External audit example

During an external audit, an auditor reviews the company’s financial records and transactions and uses the audit trail to identify discrepancies or inconsistencies; the audit trail provides the detailed record needed for that review.

Use cases

• Demonstrating regulatory compliance (for example, under the Sarbanes-Oxley Act (SOX)).
• Supporting external audits by providing a detailed transaction history.
• Maintaining internal controls and transparent financial record-keeping.

Related terms

• Sarbanes-Oxley Act (SOX)
• Internal controls
• Audit
• Financial transaction