For those who followed the infamous Satyam case and the NSEL crisis, the term 'Audit Trail' may ring a bell.
Audit Trail is a step-by-step record by which accounting data can be traced to their source.
It is the technique used to track improper market activity. By documenting and analysing all houses and brokers involved in specific trades, those who follow the audit trail can hopefully identify the culprit.
Audit trail is an effective management tool for overseeing a business or organisation's finances and other resources.
It enables an examiner to trace the financial data from general ledger to the source document (invoice, receipt, voucher, etc.).
The presence of a reliable and easy to follow audit trail is an indicator of good internal controls instituted by a firm, and forms the basis of objectivity.
The US Securities and Exchange Commission and the NewYork Stock Exchange use this method for the explicit reconstruction of trades when there are questions as to the validity or accuracy of an accounting figure.
In India, SEBI has such a facility to keep track of brokers and investors. Commodity market regulator Forward Markets Commission has laid down guidelines for exchanges and its members to facilitate audit trail of transactions.