SharePoint 2007 Auditing Feature, Site Collection Level Auditing and List/Library Level Auditing

Quick steps:

1. Create a policy at the site collection level: click on Site collection policies under Site Collection Administration of the site collection Site Settings.
2. Within the same site collection, go to the list/library to be audited
3. Go to Settings of the list/library, select Information management policy settings under Permissions and Management
4. Select the policy from step 1

Note: site collection auditing NEEDs to be enabled. Audit log reports is only available at the site collection level. And audit logs take additional content database space.

Also there are 3 good article on MSDN about auditing:

• Item-Level Auditing with SharePoint 2007
• Custom Auditing in SharePoint
• Auditing in SharePoint 2007

Don't forget to trim the audit log, this tool SharePoint Audit Log Tool from codeplex can help.