## Audit Trail

An audit trail is a documented, step-by-step record showing how a source document was processed and ultimately reflected in the financial statements.

### Purpose

Establishes authentication and integrity of a transaction.
Allows the auditor (or any reviewer) to trace financial data back to its source.
Maintains a record of system and user activity — useful in both manual and IT environments.

### What an audit trail captures

```

Source Document → Journal Entry → Ledger → Trial Balance → Financial Statements

```

Each arrow represents a step that should be documented and traceable.

### In IT/Digital environments

Systems maintain electronic audit trails of log-on attempts, devices used, and changes to data.
Example: Banks keep an audit trail of every log-on to internet banking, recording time, device, and actions taken.

### Types of transactions covered

Accounting transactions, financial transactions, trade details, system access events — any action that needs to be independently verifiable.

Worked example

### Example 1

Manual audit trail: A purchase transaction flows as: Purchase Order → Supplier Invoice → Goods Received Note → Purchase Journal Entry → Accounts Payable Ledger → Balance Sheet. The auditor can trace the ₹5 lakh creditor balance all the way back to the original PO.

### Example 2

IT audit trail: The auditor asks the bank's IT team for the system log showing every user who accessed and modified the customer master file during the year — used to detect unauthorised changes to account details.

⚠️ Common exam mistakes

Thinking an audit trail is only relevant in computerised systems — audit trails exist in manual systems too (physical documents linking transactions to financial statements).
Confusing an audit trail (documenting the flow of a transaction) with audit evidence (the overall body of information supporting the auditor's conclusions) — an audit trail is a type of audit evidence.

Reference:

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