Question

Answer the following questions:

      1. What is an audit trail and why is it important in accounting?
      2. There are several types of corporations. If you were to start your own business and incorporate; discuss what type of corporation you would want to be.
            Explain why.

Answer 1

Answer 1 :-

Meaning of audit trail:- Audit trial (also called audit log ) can be either a paper or electronically based trial that provides documented history of a transaction within a company.An audit trial is the evidence,such as purchase orders and invoices, that a financial transaction actually occurred.this is a security relevant chronological record, set of records, that provide documentary evidence of the sequence of activities that have affected at any time a specific operation, procedure or event

Audit trial importance in accounting :-

1.Internal controls :- internal control in your business establish the processes that create an audit trial.For example, a cash business needs a process for logging cash in and accounting for it until it is deposited. 2.Error correction :- An accounting Trial also documents how you handle errors on your company's book. No system is error proof,and data entry mistakes will happen from time to time.when you find an error and correct it, you create a journal entry documenting the fact that you found the mistake and fixed it. 3.Fraud prevention :- Audit trials helps prevent fraud.according to the association of certified fraud examiner, small businesses with 100 or fewer employees suffer a greater percentage of loss from fraud than larger business.Audit Trial also help prevent tax fraud.A Trial that includes a receipt for every deduction you take on your taxes helps a tax auditors verify that your tax returns are accurate. 4.source documents :- A clear Audit trial consists of source documents.These original documents include cheques, invoices and time cards -any written record triggered by an accounting transaction. 5.loan and investors documents :- Lenders may require some proof of revenue and expenses to document the contents of the financial statements. An audit trial consisting of careful record keeping will provide the necessary documentation. Maintaining clear records of all transactions speeds the process and may reduce the cost of the audit.