The audit trail contains all of the physical records that document each step in a business transaction. The audit trail simply verifies through visual sources that a procedure or transaction has occurred. A well-constructed audit trail validates the information contained in financial statements and allows a business to meet government record keeping requirements for tax reporting. Regardless of the size or complexity of a business, the importance of an effective audit trail cannot be overstated.
A clear audit trail consists of source documents; that is, original checks, invoices, time cards, expense receipts, etc. that trigger an accounting transaction and prove its business purpose. Retaining and maintaining these source documents in an easy-to-use filing system allows for their easy access whenever needed (e.g., account reconciliation or an unannounced IRS audit).
The following tips will improve your audit trail and strengthen the record keeping of your business:
- Don’t pay personal expenses from business accounts
- Obtain and retain receipts or invoices for all business expenses (account statements are not enough)
- Maintain journals for transactions that don’t typically issue receipts or invoices (i.e., parking meters, tolls, etc.)
- Use sequentially-numbered source documents (i.e., checks, customer invoices, etc.)
- Use a mileage log for all business travel
- Maintain personnel files for all employees
- Maintain information files on all independent contractors
A well designed bookkeeping system can provide an effective audit trail and validate the accounting information of any business. Contact Flexible Accounting Services of the Triangle today and let us assist you in designing and maintaining a bookkeeping system that meets your needs.