08 Aug 2022 5 MIN READ
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The principle of audit trail. Business transparency as a key to its growth

Now we are at the point of important changes concerning both each individual and the state as a whole. Business is no exception. Ukrainian companies are at the stage of searching for new opportunities for development and scaling. Increasing attention is paid to optimization of management processes, planning and implementation of European best business practices. It is important to remember: the sooner the owners or managers of companies begin the gradual process transformation, the higher their chance of finding “their place” in the progressive business field.

Business transformation should begin with ensuring its transparency. Therefore, in this article we will talk about the principle of audit trail and why your accounting system needs it if you plan to enter the EU economic space.

What is audit trail?

It is a detailed historical record that keeps track of accounting records, project details, or other financial data. An audit trail is often a regulatory requirement in many financial areas and is considered best business practice for a company’s thorough and organized accounting suite. Audit logs are used to check all kinds of transactions, workflows, credentials, brokerage account agreements, etc.

How does it work?

sorting out based on example of ERP system

Since financial, commodity or other accounting information is nowadays recorded, managed and accounted in automated systems such as ERP, we suggest looking into the basic principle of the audit trail in this vein.

At the heart of ERP systems based on the principle of audit trail is the display of all financial transactions in chronological order, and the changes that occur in these transactions exist as a separate record. That is, if a certain document was posted, to change something in it – such as product name, price, quantity, etc. – you need to create an additional document instead of overwriting the previously created one. An example of such an ERP solution is Microsoft Dynamics 365 Business Central: all changes in the system are displayed and recorded, and the persons or other triggers that caused the changes are also indicated.

In 1C type systems, the absence of the audit trail principle allows you to correct and delete previously entered data without displaying these changes. This increases the risk of fraud, significantly complicates the process of passing an external audit and indicates the lack of transparency of financial accounting, which forms its “unattractive” image.

Overall, the use of the audit trail principle is generally accepted in the European and American markets. So, what is the importance of its implementation specifically in your business? Let’s try to figure it out!

Why is it important for business?

Overall, the main advantages of using the audit trail principle are as follows:

Fraud prevention

Audit trail records help companies better control what is happening within the company and quickly find accounting errors and correct them with a detailed and chronological activity log. Even the fact that such a tool is in place prevents internal fraud, as employees know that any criminal activity will soon be exposed.

Stress-free audit

For companies requiring regular independent audits, having consistent and understandable financial records makes the process much easier. When all transactions have an audit trail, an auditor can quickly identify and authenticate the transactions. And the history of records and changes will help them point out errors and identify areas of development for financial accounting. Basically, this is the essence of an audit. It is also important to understand that the ability of auditors to quickly complete their work allows you to reduce the cost and time of the procedure.

Completeness of information

Having an audit trail makes it easy to verify the information you need. Having only the number and date of the original document, you can easily find all records in the system related to this document. This will allow you to quickly and conveniently see the full picture at your request.

Loans, Investment, Capitalization

An experienced investor conducts a detailed check, evaluating whether it is worth investing in a company. A loan officer, before granting a loan, must make sure that the company looks financially sound. And entering the stock market is impossible without financial accounting maintained in accordance with the international standards.

The use of an audit trail and high-quality audit reports, which we talked about above, become signals of safety and reliability in these matters. And accurate financial data will strengthen the credibility of your business and ensure its transparency for interested market players.

It is also important to understand that having transparent and globally approved business management systems and financial accounting tools affects capitalization of your business. Therefore, when investing, for example, in an ERP system, keep in mind that in addition to optimizing business processes and opening up new business opportunities, you are shaping the company’s image, increasing its overall value and making it more attractive to potential investors, buyers and other stakeholders.

Talking of Renovation, or Summary

Now the issue of business transparency is perhaps the most important for ambitious Ukrainian companies. No matter what the scale of your business today, if tomorrow you want to be attractive to foreign investment, enter international markets or become a full-fledged player in the stock exchange.

It’s like renovating an apartment: it’s better to install proven equipment and make a high-quality bathroom outright. This apartment will then be most suitable for your life. This apartment can be rented out profitably without worrying that tenants will find critical problems and terminate the contract. And, if necessary, an apartment with a quality renovation can be sold profitably – without the exhausting search for pitfalls.

In the language of business, having a world-tested and approved resource management solution is, in fact, your high-quality renovation. Availability of audit trail within the solution speaks of its transparency and reliability. And if on the way of business transformation, you need a high-quality integrator of an ERP solution or other smart systems, SMART business is ready to become a reliable participant in your renovation. Contact us for more details: sales@smart-it.com.