Definition of Audit Trail
An audit trail is a verifiable, tamper-evident, and time-coded digital record, capturing timestamp, location, user identity, action details, and business context to ensure accountability and data integrity.
What is an Audit Trail?
Think of an audit trail as a complete digital record that provides detailed context about every action — such as what action was performed, who performed it, when they performed it, where they performed it, and why they performed it. Audit trails can capture information with varying depth, depending on the context, organisational requirements, and industry regulations.
Let’s take a simple example. A food manufacturer may maintain a detailed record of financial transactions and subsequent changes using a dedicated food ERP software, such as transaction type (raw material purchase invoice), original entry, corrected entry, modified by (accounts executive), date and time, reason for change, and approval.
Key Takeaways:
- An audit trail provides a secure, timestamped digital record of every action for better accountability and data integrity.
- An audit trail captures a comprehensive, traceable record such as who did what, when, where, and why.
- An audit trail enables businesses to become audit-ready, maintain transparency, prevent fraud, and meet compliance requirements.
- Sage X3 maintains an end-to-end audit trail, helping businesses trace errors, track adjustments, prevent unauthorized modifications, and maintain audit readiness.
The Working of Audit Trail
An audit trail has a full record of events that have occurred during the execution of the transaction. These events include all key details of a transaction to get reviewed in the future. The transactions can either be simple or can be complex.
In the case of a complex transaction, the audit trail can help you verify the source of funds. Then, the financial regulators can check these complex trails from the brokerage firms to identify and study suspicious activities.
Types of Audit Trail
There are five different types of audit trails: IT & Security audit trails, user activity trails, financial audit trails, operational audit trails, and compliance audit trails
1. IT & Security Audit Trails
These audit trails play an important role in assessing overall performance and security of the company’s IT systems. They include comprehensive details about everything from user logins, network performance, system issues, and performance glitches to security incidents.
2. User Activity Trails
The objective of these trails is to ensure users are accountable for their actions. They provide insights into user access attempts, command executions, and user-made changes, which make them crucial for investigating compliance violations and security incidents.
3. Financial Audit Trails
These audit trails cover everything about a company’s financial activity, including payments, receipts, and journal postings, with the aim of improving financial integrity. They can serve as crucial evidence in detecting and investigating financial fraud and discrepancies.
4. Operational Audit Trails
These audit trails provide deeper information into an organisation’s core processes and activities. They are maintained to identify operational gaps, fix inefficiencies, make strategic decisions at the executive level, and implement organisation-wide standardisation.
5. Compliance Audit Trails
Compliance audit trails are mandatory in many industries, including food & beverage, pharmaceutical, and chemical. Companies need to maintain compliance audit trails to establish trust and avoid fines, penalties, lawsuits, and reputational damage.
What is the Importance of an Audit Trail for Business Accounting ?
Audit trails are extremely significant for businesses as they help them become audit-ready, prevent fraud, leverage debt strategy, meet compliance requirements, and defend the company during investigations.
1. Ensure Audit-Readiness
As per Section 139(5) of the Companies Act, 2013, publicly owned companies undergo mandatory independent statutory audits directly by the Comptroller and Auditor General (C&AG) of India. An audit trail helps them maintain a comprehensive, traceable record to prepare for internal or external audits.
2. Fraud Prevention
Audit trails can be extremely helpful in detecting accounting discrepancies and financial fraud. They provide deeper insights across various levels, giving businesses better control over the entire operation to prevent fraud and misuse.
3. Debt Strategy & Leverage Positioning
Businesses maintain detailed audit trails as per of their debt strategy and leverage positioning. In order to secure debts and investments, they need to maintain due diligence and build trust among creditors and investors.
4. Meet Compliance Requirements
The compliance requirements for different industries differ significantly. For example, the FSSAI (Food Safety and Standards Authority of India) requires companies to establish Standard Operating Procedures (SOPs) and maintain mandatory audits for food safety, hygiene, and other purposes.
5. Corporate Defense During Investigations
In case of legal investigations and regulatory scrutiny, audit trails can serve as an important defence to trace the sequence of events. They help establish trust, defend the company’s position, and assist in investigating the real culprit.
What information should be included in an Audit Trail?
Apart from the other requisites, the rules mentioned by the MCA also mandate to contain crucial details of –
- Each transaction occurred within the company indicating the amount, date, and transaction nature.
- All authorised transactions and amendments made in accounts books.
- All rejected and approved transactions, and changes made in accounts books, comprising the names of the person who has rejected/approved the transactions.
- Each detail of restoration and backup activities with respect to the books of accounts.
- All-access details to the books of accounts of the company like the time and date of access and who has accessed them.
Features of Audit Trail in the Accounting Software
- Timestamps should be essentially involved in the accounting program
- All transactional changes should be tracked by the feature
- The audit log should be maintained till the validity of accounting records
- The audit train should maintain a precise track of every single operation of the software on the date-by-date concept
- The software should be able to record user information
- The tool should be able to detect the difference between an audit log and a technical log
- Every change in the transaction should be indicated in the audit log like changes made right from the establishment of the transaction to its edition or deletion
Key Benefits of Audit Trail
Let’s take a glance at the incredible benefits of an audit trail –
- Identify process breakdown
- Early and quick detection of inconsistencies
- Check for internal process fraud
- A structured method to keep records along with explaining the details of every event and history of a ledger entry and transaction
- Detect vulnerable data breaches
- Needed for the best accounting strategies to stay compliant with numerous statutory as well as regulatory provisions
Audit Trail Feature in Sage X3
Audit functionality in Sage X3 provides the in-detailed trail\log of the transactions which are created, modified, and deleted. This functionality is applied to the tables of the transactions on which users are desired to enable the audit log.
The audit log can be viewed in two ways in the Sage X3, in the basic screen(tables) and in the advanced screen (Fields).
Procedure to enable Audit log:
1) Verify the activity code “AUDIT” is active by navigating to the path: Development→ Data and Parameters→ Development setup→ Activity Codes.
2) Find the tables according to the transaction on which Audit needs to be applied. Once tables are identified to enable the audit for that table go to the path: Development→ Data and Parameters→ Tables→ Tables.
Once the table is selected in the Audit tab, we can enable the type of audit which suggests the operation on which the user wants to apply the audit log.
- Creation: – whenever a new record is added newly into the table from the system, the log will be generated.
- Modification: – whenever an existing record is modified into the table from the system, the log will be generated.
- Deletion: – whenever an existing record is deleted into the table from the system, the log will be generated.
3) In the Fields audited section, the user can add the specific fields on which the log needs to be enabled. (Only those fields will have logs which are added in this section)
4) Save the configuration and validate the table by clicking on the Validation button as highlighted below screenshot
5) Now audit recording for the table is activated, to view the audit log there are 2 screens as highlighted below screenshot:
6) Tables: – This screen provides the basic information of the audit log such as which user and on which date the record is created, modified, or deleted.
7) Fields: – This screen provides in-detailed information on the audit log such as which user has modified which field and what were the previous value and the new value on that field.
8) User can extract the above data in excel as shown below image:
By following the above process user can successfully apply the audit log into the system for the desired transactions.
Wrapping Up
Sage X3 Audit trail is the most important feature that helps you keep a track of every single activity that can occur during the transaction. So, get Sage X3 for your large-scale business and leverage its audit trail feature for more advanced and precise financial operations of your company.
Frequently Asked Questions (FAQs)
1. What are the 7 audit procedures?
Here are the seven audit procedures:
- Inspection: This involves examining internal records (such as papers and digital records)
- Observations: Monitoring organisational workflows (such as cash-handling)
- Inquiries: Performing detailed inquiries for investigation purposes
- External Evidence: Contacting third-party stakeholders to confirm the accuracy of the organisation’s position
- Recalculation: Applicable in the case of mathematical records or calculations.
- Reperformance: Independent execution of organisational procedures.
- Analytical Procedure: Extensive financial analysis and data confirmation.
2. What are internal audits?
An Internal Audit is an audit conducted by a company’s internal team to identify operational gaps, discover financial discrepancies, evaluate risks, investigate outside data breaches, and improve regulatory compliance.
3. What are external audits?
An external audit is conducted by an external auditor or independent auditors. For example, third-party auditors may investigate the company’s books of accounts to assess financial position, and investigate financial frauds & discrepancies. Once an external audit is performed, auditors make a conclusive statement and communicate it to the stakeholders.
4. What does an audit trail report contain?
An audit trail report demonstrates a chronological sequence of events, capturing complete details about a process or workflow such as who did what, when, where, and how. To ensure audit reports are not modified without authorisation, they are presented with cryptographic hashes and signatures.
