Before auditing, the Reporting feature under Site Collection Feature should be activated.
Under Site Actions -> Site Settings -> Site Collection Administration -> Site Collection Features -> Reporting
If you cannot find the Site collection policies option under Site Settings ->Site Collection Administration then you must enable the Library and Folder Based Retention Feature.
Under Site Actions -> Site Settings -> Site Collection Administration -> Site Collection Features -> Library and Folder Based Retention
To start tracking who and when has viewed / downloaded, etc.., the documents, first you have to create a Site Collection Policy as mentioned below.
Site Actions -> Site Settings -> Site Collection Policies
Create new policy -> Provide Name and check the box for Enable Auditing Select Events you would like to audit -> Click OK
Then, you have to setup the Document Library / List that you would like to audit
Set up the Document Library / List which requires auditing. Go to List Settings or Library Settings of the List / Document Library you would like to audit.
Click on Information Management Policy Settings. Select the content type that you want to set the policy for auditing. Under use site collection policy of that particular content type, select the policy you had defined in first step and click OK.
Note: That’s it - from this point your library / list is set for auditing - any actions will be logged.
For review:
Go to Site Actions -> Site Settings - > Site Collection Administration ->Audit log Reports.