Question

A good audit trail will allow auditors to work backwards from any line item on a financial statement and trace it back to the trial balance, to the general ledger, and to prove details in related subsidiary accounts. It should also allow the auditors to trace entries in journals back to supporting source documents. True False

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Answer 1

True

Explanation

An audit trail is the documented flow of a transaction. It is used to investigate how a source document was translated into an account entry, and from there was inserted into the financial statements of an entity. The audit trail can be used in reverse, to track backwards from a financial statement line item to the originating source document. A well-run accounting system should have a clear audit trail for all transactions. An audit trail is used by both external auditors and internal auditors to trace transactions through an accounting system, as well as by the accounting staff to track down errors and the causes of variances in the financial statements.