What is a Walkthrough Test?
A walk-through test is an audit procedure used by an auditor during an auditing process to gauge the reliability of the accounting system used in the company. Walk-through Test helps trace transactions within the company to trace all the relevant double entries completed from the initial part of the transaction to the final disposition. Although accountants do not essentially require walk-through tests, they are very resourceful in helping identify the underlying strengths and weaknesses in the accounting software.
Therefore, it can be seen that a walk-through test can be described as a thorough examination of the accounting software that the company uses. The primary rationale behind inducing a walk-through test is to identify the existing strengths and weaknesses of the accounting system so that the overall efficacy of the accounting software can be determined. Walk-through tests are generally prescribed on an annual basis.
Walk-through Tests and the Audit Process
Year-end financial audits in companies constitute several different procedures that need to be covered by accountants to gather substantial evidence based on which they can give their opinion. So walk-through processes are considered one of the rudimentary steps, primarily because of their relative importance.
Accounting software tends to be the fulcrum based on which all bookkeeping and subsequent financial statements are carried out during the ordinary course of operations. Therefore, it is essential to ensure that all the accounting software is properly functional to record crucial financial data is not compromised upon.
In this regard, the walk-through test conducted by auditors tends to be a critical parameter, essentially because it helps to identify the existing strengths and weaknesses of the systems. Walk-through tests are conducted to evaluate the organizations underlying risk and control management measures.
When conducting a walk-through test, the auditor is supposed to the trail of transactions. This involves investigating how transactions are initiated and how they subsequently move across the company’s records. Furthermore, this tends to be important in ensuring that all the control measures are correctly implemented within the accounting software. In conducting the given walk-through test, the auditor can figure out how a particular transaction is authorized and recorded. In this regard, the auditor is also believed to ensure that there is complete accuracy in terms of different processes executed to reduce any risk associated with a material misstatement.
Furthermore, during the audit process, the auditors also check and document all the employees who have access to the software and the rights given to the auditors in this regard. It must also be noted that walk-through testing is not required to be a full-fledged formal process. Similarly, a walk-through test does not necessarily imply that other audit procedures do not need to be carried out. All audit assertions are supposed to be tested, and all audit procedures should be carried out, regardless of the results derived from the walk-through test.
How does a Walkthrough Test work?
As mentioned, walk-through tests are crafted to craft transaction cycles. It is mainly started at the beginning of the transaction cycle. A couple of tests are conducted to gauge the efficacy of the said accounting software. During the walk-through test, the following procedures are carried out:
- Inquiries
- Document inspection
- Observations
These steps are used to investigate the internal weaknesses that increase the overall risk of fraud within an organization. As far as audit standards are concerned, it can be seen that inquiries alone cannot be used to evaluate the efficacy of the given walk-through tests. Additionally, auditors need to cover observations and inspections to see and identify any inconsistencies in the accounting framework.
Audit Walk-through Documentation
Given that audit walk-through is highly resourceful in identifying the given issues within the accounting framework, documenting all the insights gained as an outcome of the walk-through test is also quite important. Because it helps organizations to determine the remedy required to fix the current issue at hand.
As part of audit walk-through documentation, it is essential to include checklists, flow lists, and other critical narratives to identify the underlying issue in this regard. This documentation can also be included as a part of audit work papers, which can be resourceful for further decision-making in organizations.
How does a Walkthrough Test work?
An Audit walk-through test is not a definitive procedure that can be solely relied upon. However, it does not play a very prominent role in enabling auditors to design the latter part of the audit process to design subsequent audit procedures to gather the required evidence.
A walk-through test works by inspecting the accounting system to check if there are any inconsistencies. If the walk-through audit test points out specific errors in the accounting system, additional procedures need to be designed to fit all the assertions. On the contrary, if the walk-through audit test identifies that the system is sound and reliable, procedures can be created based on data derived from the audit walk-through test itself.
All in all, the walk-through test tends to lay the groundwork for future audit processes. Based on this, auditors can gauge the system’s effectiveness in place, based on which they can design subsequent audit procedures accordingly.
Importance of Audit Walkthrough Test
As the walk-through audit test is considered an essential parameter in identifying two main aspects: the level of internal control and the efficacy of the accounting system in place.
Level of Internal Control: This is perhaps the most essential and foremost part of the overall audit system. Auditors need to check for internal controls because more robust internal controls are inversely proportional to the risk of fraud within an organization. When conducting a walk-through test, auditors are supposed to identify if the accounting systems have proper hierarchy and authentication processes. In this regard, they have to determine the ability with which the system can be adjusted. If the system can be easily tweaked, it would imply that the level of internal control within the organization is relatively more minor, and hence, needs further inspection and observation by the auditors.
Efficacy of the Accounting System: Several different accounting systems are in place by the organizations. They are mainly identified to ensure that a proper accounting system is free from accounting errors. For example, implementing a double-entry system tends to be a significant factor that needs to be included within the accounting system itself. The accounting system needs to be checked for these factors so that auditors can know if the reports generated by the accounting system can be relied upon or not.
