Question

An audit trail enables a person to trace a source document to its ultimate effect on the financial statements (tracing) or work back from financial statement amounts to source documents (vouching). Describe in detail the audit trail for the following: a. Purchases of inventory b. Sales of inventory c. Employee payroll

Answer 1

Audit trails are manual or electronic records that are chronologically defined events to provide support documentation and are used to prove operation of activities taken place and its correspondent change. Yes, it enables to trace source documnet to its ultimate effect on financial statements or work back. The main benefits are of reconciliation, reporting, budgeting, audit compliances and enhance accuracy.

a) Audit trail for Purchases of Inventory:

Audit trail for purchases of inventory will help in linking Purchase order, Purchase requisition, Invoice, correspondent email related to purchase and it can be even linked to Electronic Fund Transfer made as a payment for that purchased Inventory and to Journal Entry to record purchase on which Ledger No will be mentioned in that respective Journal Entry. The history of Accounts Payable, Cancelled Cheques, Inventory Changes, Payments made can all be availed easily.

b) Audit trail for Sales of Inventory:

Audit trail for sales of Inventory links Customer order, Sales order, Shipping document. The Journal entry made to record the sales can be linked to the payment received or cash received and connect the Journal entry of the receipt of goods or inventory to the former.

c) Audit trail for Employee Payroll:

Audit trail for payroll connects time sheets, time cards, any changes in their profile, periodical summary of payment made. Some firms even have Job time tickets, Labour costs, Overtimes and Incentives offered so all these events can be linked with each other. The main aim of Audit trail is to record when, how and what the event was.