Audits are independent assessments of the security of sensitive data and computer systems or a company’s financial reporting. Audits can be time-consuming and often feel peripheral to most people’s daily workload – but they are crucial exercises. Hence, it’s essential to establish an audit management process.
In addition, audit procedures are methods that auditors use to obtain sufficient and appropriate evidence to make their professional judgment about the effectiveness of an organization’s internal controls.
An internal audit report provides management with the tools necessary to help the company operate more efficiently by identifying and correcting problems before external auditors discover those weaknesses (with the more severe consequences that can ensue).
If you want your organization to save time and money, keep everything running well, prevent fraudulent practices, and reduce risks in areas such as finance or cybersecurity, performing regular audits will help you achieve all of this.
What is an Audit Trail?
Companies must maintain a thorough and real-time audit trail (also called audit logs) to track irregularities and find process failures when they occur. An audit trail is a sequential record of the history, timestamps, and details of a financial transaction, work event, product development phase, or ledger entry.
Audit trails verify and track all transactions, work processes, accounting details, and quality procedures. Audit trails can also be regulatory requirements in many branches of the financial services world. Even when not mandatory, establishing an audit trail is a best practice for a thorough and organized accounting department.
For example, the Health Insurance Portability and Accountability Act (HIPAA) requires healthcare organizations to review how information is stored and accessed periodically. An audit trail provides visibility into this health information and captures data related to date and time.
Audit logs can also help to identify external data breach issues. For example, malware and ransomware crimes are rising; an audit trail can help determine when outsiders attempt to attack your business while improving your company’s information security capabilities.
By creating a record of activities, audit trails can reduce fraud, material misstatements, and unauthorized use of assets. Audit trails improve internal controls for finance, information security, data security, computer systems, cybersecurity, and business processes, as described in the Sarbanes-Oxley Act (SOX) and the COSO framework.
What is the Purpose of an Audit Trail?
Audit trails (or audit logs) serve as record-keepers, documenting proof of certain events, procedures, or activities to reduce fraud, substantial mistakes, and unauthorized usage. Finally, audit trails aid in improving internal controls and data security.
Businesses must have a detailed audit trail to detect any abnormalities and identify process failures if and when they occur. An airtight audit trail assists businesses in detecting internal fraud by tracking different users and their actions regarding a company’s data and information.
Audit trail records can also aid in the identification of external data breach concerns. Cyberattacks are on the rise, and an audit trail can help identify and flag instances when hackers are attempting to cause harm while also strengthening your company’s information security capabilities.
Is an Audit Trail Mandatory?
For organizations to comply with various capacities, an audit trail is essential, and all publicly listed companies require active audit trails due to the Sarbanes-Oxley Act, which mandates a yearly audit by independent external auditors.
The General Data Protection Regulation (GDPR) requires businesses in Europe to keep reliable and safe records of sensitive information, along with being able to trace changes to those data.
What Are the Benefits of an Audit Trail?
An audit trail is important because it verifies and validates financial, software, and business transactions by tracking user activity. In addition, an audit log helps companies to detect unauthorized access, errors, and fraud. It also has many benefits, detailed below.
Audit trails help businesses to see what is going on within the organization. For example, an audit trail record can uncover financial discrepancies inside a corporation. Furthermore, maintaining tight controls and a solid defensive barrier to avoid cybersecurity breaches can lessen the potential of external fraud.
Regulatory compliance obligations can vary significantly among businesses. Accurate records are critical to meeting those demands, and that is what an audit trail can provide. IT services store electronic records needed to manage record-keeping, restrict and safeguard user access and versioning, and track (and alter) privacy settings as appropriate.
Ensure you understand your industry’s standards and requirements so you don’t end up with a penalty or a cost for failing to meet them. Staying ahead of audit trail standards can also help you avoid losing business, contracts, and fines.
An audit trail should be thorough and accessible to save time and enhance efficiency. Historical logs assist you with locating data that could be buried in your records. For instance, if you need to find a specific transaction but only have a piece of the data, audit trail information can help you locate the rest of the data associated with the transaction.
An audit trail is essential in an unanticipated crisis or calamity. If a weather catastrophe or natural disaster impacts your company, your audit trail will record your business activities, costs, expenses, and revenues. Make sure to back up your audit trail in a safe and off-site locale to avoid the risk of fire or flood destroying your records.
A yearly audit by an impartial third party is necessary for publicly traded corporations. You can considerably reduce the stress of an audit if adequate documents are maintained. In addition, an auditor can rapidly assess whether a transaction is valid if the audit trail is attached.
When auditors can do their work more quickly, that means less money spent on audit fees. It is also wise for companies to conduct periodic internal audits, and a step-by-step audit checklist can help create a streamlined approach.
Most Common Types of Audit Trails
Audit trails can either be system-generated or manually documented. Both types are essential to ensure that all notable events are appropriately recorded.
Event-based logs are system-generated and fall into three categories: system-level, application-level, and user audit logs.
System-Level Audit Trails
System-level audit trails are high-level. They track log-on attempt details, such as user ID, date, time, and device used. This is also where you will find network performance details and automated system operations.
Application-Level Audit Trails
Application-level audit trails capture specific activities made to files and transactions and allow auditors to see whether all process steps were followed. Logged activities include actions to individual records, such as timestamps, opening, closing, reading, editing, deleting, and printing. Sometimes, a “before” and “after” snapshot of a file or transaction is accessible.
Application-level audit trails are helpful to see when changes were made and the sequential order of those changes. It may or may not provide “why” changes were made; that depends on whether the application allows users to enter comments and whether users do enter comments.
User Audit Trails
User audit trails log activities performed by a specific user. This includes an aggregate of user metrics, visibility to which commands were initiated, and attempts to access particular information or functionality.
A manager may check user audit trails to ensure employees are doing what they should be doing. This data may include turnaround time and output, contributing to an audit trail of employee performance. More specifically, if you suspect someone is abusing privileges, a user audit trail will help identify suspicious activities and behavior.
Workflows, Emails, and Manual Documentation
For many activities, conversations and judgment calls are made to facilitate the execution of a process or transaction. For this, we need to record conversations, save emails, and document decisions made with the reasons why. This information must be easily accessible within the transaction records. Examples include:
- A customer service representative and the customer may negotiate an updated shipping date over the phone. The customer service representative would manually document this conversation in the order file.
- Ad hoc accounting adjustments must be accompanied by a detailed explanation about why the adjustment was made, and proper approvals must be well-documented.
Anytime a decision is made outside of the system or outside of standard processes, an audit trail must be present to explain why. As mentioned earlier, some business systems don’t provide a place for comments, so documenting “why” a decision or change was made is imperative to have a complete audit trail.
How to Build an Audit Trail
An audit trail should contain the information required to determine what events occurred and who or what system produced them. That event record would then include the event’s time stamp, the associated user ID, the application or command that triggered the event, and the result. These things are all time and date marked.
The information is then collected chronologically by the trail. If an audit trail incorporates keystroke monitoring, the keys a computer user activates and the machine’s reaction throughout the session are recorded.
Fortunately, practically every IT system, software, solution, or service has audit trails and audit logging, so most businesses don’t have to start from scratch.
Some systems may contain audit logs that are adjustable. A customizable audit trail would enable the administrator or other privileged user to control what information the system has in its audit trail. Some logging systems are designed to be unchangeable.
The teams configuring adjustable audit trails should double-check to verify that they’re recording everything needed for a future audit or investigation activity. Because audit logs may include sensitive information, data access to these documents or recording technologies should be restricted to only authorized individuals.
ZenGRC is Your Controls & Compliance Solution
The risk management and assessment process, including internal audits, can burden your organization heavily. ZenGRC is a governance, risk management, and compliance platform that can streamline audit processes by allowing you to gather and organize all the necessary information.
ZenGRC simplifies your audit plan with templates and a reporting dashboard that shows you what you have and what documentation you still need to be ready for your audit. In addition, ZenGRC’s risk assessment modules can provide valuable insight into where you are missing reports so you can take quick action to gather the documentation you need.
ZenGRC offers workflow tagging so you can delegate your audit project tasks and monitor their progress and completion. It allows you to prioritize tasks so personnel can plan their audit work as efficiently as possible.
ZenGRC makes it easy to work through all your compliance audit needs by centralizing your requirements. This eliminates duplication of tasks by mapping controls to multiple frameworks and providing templates for various types of audits to help you work as efficiently as possible.
Schedule a free demo to see how ZenGRC’s audit management workflows can streamline your process.