How Klarity Works

How Klarity Works: Generate Audit Trail

In this fifth and final installment of our deep-dive into how Klarity works and what it can do for you, we’re going to explore a topic that is critical to every organization — audit trail. At its simplest level, an audit trail is a chronological record that provides evidence of an established, purposeful process within a company’s financial organization. In our case, specifically for revenue recognition and ASC 606 compliance. Generating a clear, complete audit trail is also one of the capabilities that most differentiates Klarity from any other tool available today.

June 29, 2022

What’s so important about an audit trail?

There are two parallel roles that a good audit trail process plays. The first is proving that a system itself has controls in place, which allow auditors to understand what has changed within a system, who made those changes, when they made them and why.

Cory Pillow, Regional Sales Manager at Klarity

The second revolves around Sarbanes Oxley (SOX) 404 compliance, which requires organizations to conduct a yearly audit of their control environment surrounding reporting in their financial statements.

These two pieces interconnect. The simplest analogy is to think about what it was like to do math homework when you were back in school. Your teacher wants to see the answer — SOX compliance — but they also want you to show your work. In this case, that’s the audit trail. Compliance, and proof. Failing to meet these standards can have consequences from a legal standpoint and an accreditation standpoint, not to mention the financial burden. People can lose their jobs, and in some cases high ranking executives can even face jail time. It’s critical that organizations audit their own controls to ensure their financial statements are correct.

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How we deliver

Luckily, Klarity is purpose-built for the task. Our system keeps a detailed report that captures who did what and when throughout the compliance process. Every step of the way, conclusions are documented. If a reviewer assesses a non-standard term to determine its accounting impact, Klarity time and user stamps that input, along with a detailed explanation of the decision and why it was made. Users can tag team members and ask questions, all of which are logged, allowing auditors to see that your organization is asking the right questions to reach the correct conclusions. Klarity operates in the background, creating an incredibly detailed audit trail without the user having to take any additional action. No more logging every annotation, or manual checklist maintenance. The controls are turned on automatically when the system is deployed, so everything is recorded in a timely manner right out of the box.

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Every step of the way, conclusions are documented. If a reviewer assesses a non-standard term to determine its accounting impact, Klarity time and user stamps that input, along with a detailed explanation of the decision and why it was made.

Cory Pillow

Regional Sales Manager at Klarity

Another capability built into the application is role-based access control. Members of separate teams, or reviewers at different levels, will only be able to perform allowed activities to ensure that the right people are looking at the right deals. This capability can be used to further tighten and solidify internal processes. For example, a Director of Accounting can implement rules that dictate when a member of their team can move a contract from Level 1 to Level 2 review. Within those levels of review, our customers are able to fully configure and design the ideal audit trail process for their organization. If they want two levels of review for any contract over $200K, we can set that up inside the Klarity application. If there is a termination for convenience clause located inside one of those deals that requires four levels of review instead of two, we can do that, too.

Klarity also features Auditor Mode; The ability to share your holistic deal review package directly with auditors in read-only mode inside the application. They won’t be able to make any changes to deals or data, but they will have visibility into the questions that were asked directly within the documents themselves, and how those questions were resolved.

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Communication is key

We also understand the power of a precise workflow in helping to maintain a good audit trail and ultimately reduce risk at the highest level. Before Klarity, most of our customers — and most organizations in general — worked with spreadsheets or, at best, a collaborative tool like Google Sheets. Questions might be posed via email, or even offline, making it nearly impossible to gather the requisite information for an auditor when the time comes. While time-stamped conclusions can be left in the form of comments, there’s no process built in. Klarity solves that problem with a configurable workflow that notifies users when it is time for them to take an action. Every action they take will be time stamped and user stamped, any back and forth with co-workers or questions posed will be logged in the system. There’s no guessing as to whether or not a key stakeholder has provided input or completed their task.

All of this information can be accessed through the Klarity application’s easily navigable interface — if a CAO wants to see a specific deal and all of the notes pertaining to it, all it takes is a simple search. Klarity is a single source of truth for audit, providing insight into anyone who touched the contract, what they said, what they asked and what actions they took. Most importantly, everything is done in a streamlined order, in accordance with your specific processes and requirements.

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