What is meant by 'audit trail' in accounting?

An 'audit trail' in accounting refers to a comprehensive set of documentation that tracks financial transactions, providing a clear and detailed record that can be used for verification and audit purposes. This trail allows auditors and accountants to trace the origin of transactions through the financial records, ensuring that every entry can be substantiated with proper evidence.

The audit trail includes invoices, receipts, ledgers, and bank statements which helps maintain the integrity of financial reporting and ensures compliance with relevant regulations and standards. It is essential for detecting errors or fraud, as it allows for a thorough review of the transaction history, making it easier to verify the accuracy of financial statements.

In contrast, other options do not encapsulate the concept of an audit trail effectively. A summary of financial performance over time conveys aggregated financial data but lacks the detailed transaction tracking aspect. A record of bank transactions only covers one aspect of financial activity and misses the broader documentation of all transactions. A list of outstanding debts focuses on liabilities rather than tracking the complete flow of financial activities.