Audit Trail Requirements for Nigerian Businesses: NRS Compliance Guide

Nigerian businesses must maintain comprehensive records that provide a clear audit trail for tax authorities. The Nigeria Revenue Service (NRS, formerly FIRS) and State Internal Revenue Services can examine your records at any time. This guide explains what you need to maintain and how to stay audit-ready.

What Is an Audit Trail?

Definition

An audit trail is a chronological record of all business transactions that allows someone to:

• Trace transactions from source to financial statements
• Verify the accuracy of recorded information
• Understand the flow of money and goods
• Confirm compliance with laws and regulations

Purpose

Purpose	Explanation
Verification	Confirm transactions actually occurred
Accuracy	Ensure amounts are correct
Completeness	All transactions are recorded
Authorization	Proper approvals obtained
Compliance	Tax and legal requirements met

Legal Requirements

Companies and Allied Matters Act (CAMA)

CAMA requires companies to:

• Keep accounting records sufficient to explain transactions
• Disclose financial position with reasonable accuracy
• Prepare proper financial statements
• Retain records for at least 6 years

Tax Laws

Various tax laws require record keeping:

Tax	Record Requirement
VAT	6 years retention
CIT	6 years retention
WHT	6 years retention
PAYE	6 years retention

NRS (Formerly FIRS) Powers

NRS (Formerly FIRS) can:

• Request records at any time
• Conduct tax audits
• Examine any document
• Make best judgment assessments if records inadequate

What Records to Keep

Sales Records

Document	Details to Include
Sales invoices	Date, customer, description, amount, VAT
Receipts issued	Cash sales evidence
Credit notes	Adjustments and returns
Contracts	Sales agreements
Delivery notes	Proof of delivery
Customer ledger	Account balances and history

Purchase Records

Document	Details to Include
Purchase invoices	Date, supplier, description, amount, VAT
Receipts received	Evidence of purchase
Debit notes	Adjustments and returns
Purchase orders	Approval and ordering
Goods received notes	Delivery confirmation
Supplier ledger	Account balances and payments

Bank Records

Document	Purpose
Bank statements	All account transactions
Deposit slips	Cash and cheque deposits
Cheque stubs	Payments made
Bank reconciliations	Monthly matching
Transfer records	Interbank movements
Loan agreements	Borrowing documentation

Payroll Records

Document	Details
Employee files	Contracts, personal details
Payroll register	Monthly calculations
Payslips	Individual pay details
PAYE schedules	Tax deduction calculations
Pension records	Contribution schedules
NHF records	Housing fund contributions
Leave records	Absences and entitlements

Fixed Asset Records

Document	Purpose
Asset register	Complete listing
Purchase documents	Acquisition evidence
Depreciation schedules	Accounting calculations
Capital allowance schedules	Tax depreciation
Disposal records	Sales or scrapping
Insurance documents	Coverage evidence

Tax Records

Document	Requirement
TIN certificate	Registration evidence
VAT returns	Filed copies
WHT schedules	Deductions and certificates
CIT returns	Filed copies
PAYE returns	Filed copies
Tax payment receipts	Evidence of payment
Tax assessments	NRS (Formerly FIRS) communications
Tax clearance certificates	Compliance evidence

Record Retention Period

Statutory Requirements

Record Type	Minimum Retention
Accounting records	6 years
Tax returns	6 years after filing
Tax payment records	6 years
VAT invoices	6 years
WHT certificates	6 years
Employment records	6 years after employment ends
Contracts	6 years after expiry

Recommended Retention

Record Type	Recommended Period
Company formation documents	Permanently
Minutes of meetings	Permanently
Annual accounts	Permanently
Fixed asset records	Until disposal + 6 years
Major contracts	10 years or longer
Pension records	6 years after retirement

Creating an Effective Audit Trail

Transaction Documentation

For each transaction, maintain:

Element	Requirement
Source document	Invoice, receipt, contract
Authorization	Approval evidence
Recording	Journal entry
Classification	Account code assignment
Reconciliation	Verification to control totals

Example: Sales Transaction Trail

1. Customer order received
Sales order approved
Goods delivered (delivery note)
Invoice issued (VAT invoice)
Posted to accounting system
Customer payment received
Receipt issued
Bank reconciled
Financial statements reflect sale

Example: Expense Transaction Trail

1. Purchase requisition
Purchase order approved
Goods/services received
Supplier invoice received
Invoice verified and approved
Posted to accounting system
Payment approved
Payment made
Bank reconciled
Financial statements reflect expense

Digital Record Keeping

Acceptable Electronic Records

Format	Acceptability
PDF invoices	Acceptable
Scanned documents	Acceptable if legible
Electronic accounting records	Acceptable
Email correspondence	Acceptable as supporting
Cloud storage	Acceptable if accessible

Requirements for Digital Records

Requirement	Details
Readability	Must be legible and accessible
Integrity	Cannot be altered without detection
Backup	Regular backups required
Security	Protected from unauthorized access
Retrieval	Can be produced on request

Best Practices

1. Organized filing system - Logical folder structure
2. Consistent naming - Date and description in filenames
3. Regular backups - Multiple copies in different locations
4. Access controls - Limit who can modify records
5. Audit log - System tracks changes

Preparing for Tax Audits

Types of Audits

Type	Scope
Desk audit	Review submitted returns
Field audit	On-site examination
Comprehensive audit	All taxes, multiple years
Issue-specific audit	Focused on particular matter

What NRS (Formerly FIRS) Examines

Area	What They Check
Revenue	All income sources, completeness
Expenses	Validity, deductibility
Assets	Existence, valuation, depreciation
Liabilities	Accuracy, related parties
Tax computations	Calculations, rates, exemptions
Compliance	Filing, payment, timing

Audit Preparation Checklist

Before Audit:

• [ ] Organize all records by year and type
• [ ] Reconcile all accounts
• [ ] Prepare summary schedules
• [ ] Review previous audit findings
• [ ] Identify potential issues
• [ ] Brief relevant staff
• [ ] Designate audit liaison

Documents to Have Ready:

• [ ] Financial statements
• [ ] Trial balances
• [ ] Tax returns (all types)
• [ ] Bank statements and reconciliations
• [ ] Sales and purchase ledgers
• [ ] Fixed asset register
• [ ] Payroll records
• [ ] Contracts and agreements

During the Audit

Do	Don't
Cooperate fully	Obstruct or delay
Provide requested documents	Volunteer unnecessary information
Keep copies of documents provided	Allow documents to leave premises
Document all discussions	Make verbal commitments
Ask for clarification if unclear	Guess at answers
Involve professionals if complex	Handle serious issues alone

Common Audit Trail Deficiencies

Documentation Gaps

Issue	Impact
Missing invoices	Cannot support deductions
No approval signatures	Authorization unclear
Incomplete records	Transaction validity questioned
Poor organization	Delays and suspicion

Reconciliation Issues

Issue	Impact
Unreconciled bank accounts	Cash balance uncertain
Outstanding items not cleared	Potential errors hidden
No supporting schedules	Cannot verify balances

Timing Issues

Issue	Impact
Transactions in wrong period	Revenue/expense misstatement
Cut-off errors	Financial position inaccurate
Backdated documents	Validity questioned

How Finora Creates an Audit Trail

Automatic Record Keeping

Feature	Audit Trail Benefit
Every transaction recorded	Complete history
Timestamps on all entries	Date and time verified
User identification	Who made each entry
Original values preserved	Changes tracked
Document attachments	Supporting evidence linked

Change Tracking

Finora tracks:

• Who made changes
• When changes were made
• What was changed
• Original and new values

Document Management

Capability	Benefit
Attach invoices to transactions	Supporting documents linked
Store receipts and contracts	All evidence in one place
Searchable records	Quick retrieval
Export capabilities	Produce records on demand

Reconciliation Support

Feature	How It Helps
Bank feeds	Automatic transaction import
Matching tools	Easy reconciliation
Outstanding item tracking	Clear visibility
Reconciliation reports	Documentation ready

Reporting for Audits

Generate on demand:

• Transaction listings
• Account summaries
• Tax schedules
• Financial statements
• Custom reports

Frequently Asked Questions

How long must I keep records?

The standard requirement is 6 years for most tax records. However, some records (company formation documents, significant contracts, annual accounts) should be kept longer or permanently.

Can I store records digitally?

Yes, digital records are acceptable provided they are readable, properly backed up, secure, and can be produced on request. Many businesses now maintain primarily digital records.

What if I can't produce records during an audit?

NRS (Formerly FIRS) can make a "best judgment assessment" based on available information. This often results in higher assessed tax. Penalties for inadequate records may also apply.

Do I need to keep paper copies of everything?

Not necessarily. Digital copies of documents are generally acceptable. However, ensure your digital records are properly maintained, backed up, and accessible.

What about records for closed companies?

Records should be retained for at least 6 years after the company is wound up. Directors remain responsible for maintaining these records.

Conclusion

Maintaining a proper audit trail is essential for:

• Legal compliance with CAMA and tax laws
• Tax audit readiness when NRS (Formerly FIRS) examines your records
• Business protection with documented transactions
• Financial accuracy through reconciliation and verification

Key principles:

• Keep comprehensive records
• Maintain for at least 6 years
• Organize logically and consistently
• Back up regularly
• Be ready to produce records on request

Finora automatically creates and maintains the audit trail you need, with complete transaction history, document attachments, change tracking, and easy retrieval capabilities.

---

Build a comprehensive audit trail automatically.

Get started for free and let Finora maintain the records you need for tax compliance and audit readiness.

Start Free →