diff --git a/contracts/src/auditing.rs b/contracts/src/auditing.rs
new file mode 100644
index 00000000..6adaa4e5
--- /dev/null
+++ b/contracts/src/auditing.rs
@@ -0,0 +1,118 @@
+use soroban_sdk::{contract, contractimpl, Address, BytesN, Env, String, Symbol, Vec};
+
+use crate::errors::Error;
+use crate::events::emit_audit_event;
+use crate::storage::AuditDataKey;
+use crate::types::AuditRecord;
+
+#[contract]
+pub struct Auditing;
+
+#[contractimpl]
+impl Auditing {
+    pub fn get_audit_report(env: Env, credential_id: BytesN<32>) -> Vec<AuditRecord> {
+        env.storage()
+            .persistent()
+            .get(&AuditDataKey::AuditRecords(credential_id))
+            .unwrap_or(Vec::new(&env))
+    }
+
+    pub fn log_audit_event(
+        env: Env,
+        credential_id: BytesN<32>,
+        actor: Address,
+        action: Symbol,
+        details: String,
+    ) {
+        let timestamp = env.ledger().timestamp();
+        let record = AuditRecord {
+            credential_id: credential_id.clone(),
+            actor: actor.clone(),
+            action: action.clone(),
+            timestamp,
+            details,
+        };
+
+        let mut records = Self::get_audit_report(env.clone(), credential_id.clone());
+        records.push_back(record.clone());
+
+        env.storage()
+            .persistent()
+            .set(&AuditDataKey::AuditRecords(credential_id.clone()), &records);
+
+        emit_audit_event(&env, actor, record);
+    }
+
+    pub fn track_activity(env: Env, actor: Address, is_failure: bool) -> Result<(), Error> {
+        let mut failed_attempts: u32 = env
+            .storage()
+            .instance()
+            .get(&AuditDataKey::ActivityTracker(actor.clone()))
+            .unwrap_or(0);
+
+        if is_failure {
+            failed_attempts += 1;
+        } else {
+            failed_attempts = 0;
+        }
+
+        env.storage().instance().set(
+            &AuditDataKey::ActivityTracker(actor.clone()),
+            &failed_attempts,
+        );
+
+        if failed_attempts > 5 {
+            Self::log_audit_event(
+                env.clone(),
+                BytesN::from_array(&env, &[0; 32]), // Dummy ID for suspicious actor without specific credential
+                actor.clone(),
+                Symbol::new(&env, "suspicious"),
+                String::from_str(&env, "Excessive verification failures"),
+            );
+        }
+
+        Ok(())
+    }
+
+    pub fn require_auth(_env: Env, actor: Address) {
+        actor.require_auth();
+    }
+
+    pub fn credential_exists(env: Env, credential_id: BytesN<32>) -> Result<(), Error> {
+        let records: Option<Vec<AuditRecord>> = env
+            .storage()
+            .persistent()
+            .get(&AuditDataKey::AuditRecords(credential_id));
+        if records.is_none() {
+            return Err(Error::CredentialNotFound);
+        }
+        Ok(())
+    }
+
+    pub fn credential_not_revoked(env: Env, credential_id: BytesN<32>) -> Result<(), Error> {
+        let records = Self::get_audit_report(env.clone(), credential_id);
+        for record in records.iter() {
+            if record.action == Symbol::new(&env, "revoked") {
+                return Err(Error::CredentialRevoked);
+            }
+        }
+        Ok(())
+    }
+
+    pub fn issuer_authorized(
+        env: Env,
+        issuer: Address,
+        credential_id: BytesN<32>,
+    ) -> Result<(), Error> {
+        let records = Self::get_audit_report(env.clone(), credential_id);
+        for record in records.iter() {
+            if record.action == Symbol::new(&env, "issued") {
+                if record.actor != issuer {
+                    return Err(Error::IssuerNotAuthorized);
+                }
+                return Ok(());
+            }
+        }
+        Ok(())
+    }
+}
diff --git a/contracts/src/errors.rs b/contracts/src/errors.rs
index d90594e7..09be593e 100644
--- a/contracts/src/errors.rs
+++ b/contracts/src/errors.rs
@@ -21,4 +21,9 @@ pub enum Error {
     MigrationFailed = 14,
     VersionMismatch = 15,
     StorageCorrupted = 16,
+    // Auditing errors
+    SuspiciousActivity = 17,
+    IssuerNotAuthorized = 18,
+    CredentialRevoked = 19,
+    CredentialNotFound = 20,
 }
diff --git a/contracts/src/events.rs b/contracts/src/events.rs
new file mode 100644
index 00000000..826848b4
--- /dev/null
+++ b/contracts/src/events.rs
@@ -0,0 +1,7 @@
+use crate::types::AuditRecord;
+use soroban_sdk::{symbol_short, Address, Env};
+
+pub fn emit_audit_event(env: &Env, actor: Address, audit_record: AuditRecord) {
+    env.events()
+        .publish((symbol_short!("audit"), actor), audit_record);
+}
diff --git a/contracts/src/lib.rs b/contracts/src/lib.rs
index 8326ce1f..b3dc34c0 100644
--- a/contracts/src/lib.rs
+++ b/contracts/src/lib.rs
@@ -1,9 +1,13 @@
 #![no_std]
 
 pub mod access_control;
+pub mod auditing;
 pub mod data_sharing;
 pub mod errors;
+pub mod events;
 pub mod identity_registry;
+pub mod storage;
+pub mod types;
 pub mod upgrade;
 pub mod verification;
 
@@ -16,6 +20,9 @@ mod integration_tests;
 #[cfg(test)]
 mod benchmarks;
 
+#[cfg(test)]
+mod test;
+
 pub use access_control::AccessControl;
 pub use data_sharing::DataSharing;
 pub use errors::Error;
diff --git a/contracts/src/storage.rs b/contracts/src/storage.rs
new file mode 100644
index 00000000..252bc0c1
--- /dev/null
+++ b/contracts/src/storage.rs
@@ -0,0 +1,7 @@
+use soroban_sdk::{contracttype, Address, BytesN};
+
+#[contracttype]
+pub enum AuditDataKey {
+    AuditRecords(BytesN<32>),
+    ActivityTracker(Address),
+}
diff --git a/contracts/src/test.rs b/contracts/src/test.rs
new file mode 100644
index 00000000..171344f4
--- /dev/null
+++ b/contracts/src/test.rs
@@ -0,0 +1,101 @@
+#![cfg(test)]
+
+use crate::auditing::{Auditing, AuditingClient};
+use soroban_sdk::{testutils::Address as _, Address, BytesN, Env, String, Symbol};
+
+#[test]
+fn test_audit_record_created() {
+    let env = Env::default();
+    let contract_id = env.register_contract(None, Auditing);
+    let client = AuditingClient::new(&env, &contract_id);
+    let actor = Address::generate(&env);
+    let credential_id = BytesN::from_array(&env, &[1; 32]);
+
+    client.log_audit_event(
+        &credential_id,
+        &actor,
+        &Symbol::new(&env, "issued"),
+        &String::from_str(&env, "Credential created"),
+    );
+
+    let report = client.get_audit_report(&credential_id);
+    assert_eq!(report.len(), 1);
+    let record = report.get(0).unwrap();
+    assert_eq!(record.credential_id, credential_id);
+    assert_eq!(record.actor, actor);
+    assert_eq!(record.action, Symbol::new(&env, "issued"));
+}
+
+#[test]
+fn test_suspicious_activity_logged() {
+    let env = Env::default();
+    let contract_id = env.register_contract(None, Auditing);
+    let client = AuditingClient::new(&env, &contract_id);
+    let actor = Address::generate(&env);
+
+    for _ in 0..5 {
+        client.track_activity(&actor, &true);
+    }
+
+    // 6th failure should trigger suspicious activity
+    client.track_activity(&actor, &true);
+
+    // Verify dummy credential ID was used for the event
+    let dummy_id = BytesN::from_array(&env, &[0; 32]);
+    let report = client.get_audit_report(&dummy_id);
+    assert_eq!(report.len(), 1);
+    let record = report.get(0).unwrap();
+    assert_eq!(record.action, Symbol::new(&env, "suspicious"));
+}
+
+#[test]
+fn test_security_check_failure() {
+    let env = Env::default();
+    let contract_id = env.register_contract(None, Auditing);
+    let client = AuditingClient::new(&env, &contract_id);
+    let credential_id = BytesN::from_array(&env, &[2; 32]);
+
+    let res = client.try_credential_exists(&credential_id);
+    assert!(res.is_err());
+}
+
+#[test]
+fn test_audit_report_generation() {
+    let env = Env::default();
+    let contract_id = env.register_contract(None, Auditing);
+    let client = AuditingClient::new(&env, &contract_id);
+    let actor = Address::generate(&env);
+    let credential_id = BytesN::from_array(&env, &[3; 32]);
+
+    client.log_audit_event(
+        &credential_id,
+        &actor,
+        &Symbol::new(&env, "issued"),
+        &String::from_str(&env, "first"),
+    );
+    client.log_audit_event(
+        &credential_id,
+        &actor,
+        &Symbol::new(&env, "verified"),
+        &String::from_str(&env, "second"),
+    );
+
+    let report = client.get_audit_report(&credential_id);
+    assert_eq!(report.len(), 2);
+}
+
+#[test]
+fn test_events_emitted() {
+    let env = Env::default();
+    let contract_id = env.register_contract(None, Auditing);
+    let client = AuditingClient::new(&env, &contract_id);
+    let actor = Address::generate(&env);
+    let credential_id = BytesN::from_array(&env, &[4; 32]);
+
+    client.log_audit_event(
+        &credential_id,
+        &actor,
+        &Symbol::new(&env, "issued"),
+        &String::from_str(&env, "Emit test"),
+    );
+}
diff --git a/contracts/src/types.rs b/contracts/src/types.rs
new file mode 100644
index 00000000..d60784d8
--- /dev/null
+++ b/contracts/src/types.rs
@@ -0,0 +1,21 @@
+use soroban_sdk::{contracttype, Address, BytesN, String, Symbol};
+
+#[contracttype]
+#[derive(Clone, Debug, Eq, PartialEq)]
+pub enum AuditEventType {
+    CredentialIssued,
+    CredentialUpdated,
+    CredentialRevoked,
+    CredentialVerified,
+    SuspiciousActivityDetected,
+}
+
+#[contracttype]
+#[derive(Clone, Debug, Eq, PartialEq)]
+pub struct AuditRecord {
+    pub credential_id: BytesN<32>,
+    pub actor: Address,
+    pub action: Symbol,
+    pub timestamp: u64,
+    pub details: String,
+}