What Is Walkthrough in Audit and Why It Matters
Walkthrough in Audit Definition
A walkthrough in audit is an audit procedure where the auditor traces one complete transaction from initiation through the entity’s processing (including relevant information technology) to final recording in the financial statements to obtain an understanding of the design and implementation of the client’s internal controls relevant to auditing and identify risks of material misstatement.
Walkthrough Example: Sales Invoice #1234
| Step | Document | Control |
|---|---|---|
| 1. Order | Customer PO | Manager approval |
| 2. Invoice | Sales Invoice | Segregation of duties |
| 3. Dispatch | Delivery Note | Quantity match |
| 4. Payment | Bank Statement | Reconciliation |
| 5. Ledger | AR Ledger | Aging report |
Objectives of Walkthrough in Audit
The key audit walkthrough objectives include:
- Understand the client’s business processes and transactions.
- Identify key controls and potential risks.
- Assess the effectiveness of internal controls.
- Determine the extent of testing required.
- Identify areas for improvement.
Key Audit Walkthrough Steps and Procedure
The following audit walkthrough steps are generally followed:
- Plan the walkthrough: Identify transactions or processes to review.
- Prepare documentation: Gather relevant documents and records.
- Conduct the walkthrough: Trace transactions or processes.
- Identify controls and risks: Document key controls and potential risks.
- Evaluate controls: Assess effectiveness of identified controls.
- Document findings: Record results of the audit walkthrough procedure.
Benefits of Walkthrough in Audit
The major benefits of walkthrough in audit are:
- Enhanced understanding of client’s business.
- Identification of key controls and risks.
- Improved audit efficiency.
- Better risk assessment.
- Enhanced audit quality.
Types of Walkthroughs in Auditing
Auditors may conduct different types of walkthroughs, such as:
- Transaction walkthrough: Tracing a specific transaction.
- Process walkthrough: Reviewing a business process.
- System walkthrough: Evaluating IT systems and controls.
Best Practices for Internal Controls Walkthrough
To ensure effective walkthroughs, auditors should:
- Involve client personnel.
- Document walkthrough procedures.
- Test controls during walkthrough.
- Consider multiple scenarios.
- Update audit plan based on walkthrough findings.
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