What is Walkthrough Test?

There are several audit procedures that auditors can use to measure a client’s internal control efficiency. Once they do so, they can establish a level at which they can set the risk for the audit assignment. This process is crucial in saving the auditor’s time while also determining the level of substantive audit procedures to perform.

Before performing such procedures, however, auditors must understand how the client’s systems work. Usually, auditors enquire from the client’s management about the process. In some cases, however, that may not be reliable or sufficient. Therefore, auditors will need other procedures to understand these processes better. One such procedure is the walkthrough test.

What is the Walkthrough Test?

The walkthrough test is an audit procedure that auditors use to measure a client’s internal control system and its efficiency. With a walkthrough test, auditors trace a transaction from its commencement until it enters the financial statements. This way, the auditor can understand the process behind a specific account better. This test helps auditors measure a client’s accounting system’s reliability.

While there are many tests that allow auditors to determine this reliability, the walkthrough test is the most comprehensive. Auditors can go through the process by themselves to understand the client’s processes better. This way, they don’t have to rely on enquiries from the management, which may sometimes be unreliable.

However, the walkthrough test is not mandatory. Auditors can avoid this procedure if they have established reliability. However, this test can be crucial in identifying internal control and accounting system weaknesses. In some cases, auditors can use the walkthrough test can help auditors understand the process better. Based on that understanding, they can prepare better procedures to help during the audit.

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How Does a Walkthrough Test Work?

During a walkthrough test, an auditor will select some transactions, usually through sampling or random selection. Then, they trace these transactions through the client’s financial reporting system. During this process, the auditor’s goal is to understand the client’s systems and identify any weaknesses. Therefore, the auditor will check for deficiencies such as authorization, verification, segregation of duties issues, etc.

Auditors usually use it to build their procedures for other tests. For example, they can use this test to establish the test of controls or test of details they need to perform during their audit. Based on that, they can also determine the substantive analytical procedures they need to perform. Overall, the walkthrough test can be significantly critical in assessing a client’s internal control systems.

What is an example of a Walkthrough Test?

An auditor wants to establish the reliance they can put on the client’s internal control systems for sales. However, they do not understand how the client registers its revenues in its accounting system. Therefore, the auditor requests the client for a walkthrough of the process. However, the auditor first selects a few sale transactions from the financial systems.

For the selected transactions, the auditor goes through the whole process of registering sales. This process starts from determining the controls for recording new sales through sales orders. Then, it follows other processes, such as invoices, delivery notes, etc. During this process, the auditor establishes the client’s internal control systems are inefficient.

During this process, the auditor will study how those transactions get initiated and move through the system. The auditor will also examine how these transactions are authorized, recorded, and reported in the accounting system. Similarly, the auditor will check for how accurate each step is in delivering the required outcome. Both internal and external auditors can benefit from walkthrough tests.

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What is the Importance of Walkthrough Tests?

Walkthrough tests are crucial for several reasons. Most importantly, these tests are necessary to establish the effectiveness of the internal control systems for a company. As mentioned, it is one reason why both external and internal auditors rely on walkthrough tests. Through this test, they can also identify any weaknesses in the internal control systems and take counteractions.

In some cases, however, auditors can ignore walkthrough tests. However, these cases are only when the auditor establishes the controls to be effective at a client. Despite that, walkthrough tests can be crucial in helping auditors better understand the processes involved. Based on that, they can enhance their audit procedures to fit the engagement’s requirements.

Usually, a walkthrough test involves inquiries from the management and employees, observation of processes, and inspecting documents. These are all crucial audit procedures for auditors. Therefore, these tests can also be a part of the auditor’s overall procedures for a specific client. On top of that, walkthrough tests aren’t only for auditors. Some companies can perform these tests internally to use for internal control purposes.

Conclusion

When auditors establish the efficiency of a client’s internal control systems, they will use several procedures. One of these is the walkthrough test. This test allows auditors to trace several transactions through the client’s financial system. It helps them establish whether the client’s internal controls are sufficient and identify any weaknesses in them. Similarly, it allows auditors to understand the client’s processes better.

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