Accounting has a lot of concepts, principles, and terms being thrown around that it may put off the layman. However, accounting is pretty important in business, especially when it comes to the financial aspect.
Having said that, an accounting system would typically be installed in a company’s computer systems so that the small business owner will be able to account for all of the things that need to be recorded in the financial records. These programs can be installed by audit firms in Kuala Lumpur.
When you look at the records that are made by such accounting systems, you will find a particular record called the “Audit Trail”. What is it and how can it provide benefit to any business?
What is an Audit Trail?
To put it succinctly, an audit trail just refers to a number of documents that record your company’s financial transactions over a given period of time.
For instance, if you take a deduction for office supplies on your business tax return, there will be an audit trail that will deduct the ones that are being itemized. It will also include a dated receipt from the seller and a debit on the company’s financial records of the purchase.
Back in the day, an audit trail is typically made up of paper records only due to the limitation of technology at that time. However, most companies employ accounting software now and, therefore, keep electronic records. Still, there are companies that would record it in both media just for safekeeping.
An audit trail can be useful as it helps you prevent fraud. Small business owners are actually more susceptible to fraud than larger companies, according to the Association of Certified Fraud Examiners.
To expound, small businesses that have less than 100 employees would usually be making payments to bogus or fictitious vendors, they might also pad expense accounts, and may even tamper with the company’s checks.
Audit trails can prevent all of these and more. It can even help prevent tax fraud as well. It will include all of the receipts that have deductions on the taxes that you take and this will make the life of a tax auditor easier as they can easily pinpoint the accuracy of your tax returns.
Look, even if you have the best software out there, errors can still pop up from time to time. That is where an audit trail comes in. It will handle any errors on your company’s financial records and will keep documents of the corrected ones.
Once it finds errors, it will notify you and will automatically create a journal about the mistake and how to effectively correct it.
The beauty of audit trails is that it helps create a new document that will ensure that you are not going to commit the same mistakes twice. It will also help external auditors to pinpoint exactly what went wrong and so that they can make their reports as quickly and as easily as possible.