External auditors often carry out what are known as walkthroughs while they complete their fieldwork. They involve the auditors spending time sat with members of the finance team and perform what could be classed as an “interview”, discussing how the person performs their daily tasks etc.
So, what is the purpose of an audit walkthrough?
It is an auditor’s responsibility to get an understanding of how a business’ finance processes work in practice. For example, the auditor may have been told how the purchase ledger team perform their job but they need to see this actually working before they can become comfortable with it.
The auditor needs to understand who performs each role and how they do it. They also need to know what systems are used and what controls are in place to prevent fraud being committed or to reduce the chance of a mistake going unnoticed. A good audit walkthrough will cover all of these items in detail and will also observe that the controls really are in place.
How is a walkthrough conducted?
The auditor will need to spend time with the relevant members of the finance team and ask questions as well as observe them carrying out their day to day tasks. The intention of a walkthrough is not to catch the employees out by asking tricky or awkward questions, however in carrying out the walkthrough, the auditor may discover parts of the processes which are not appropriate.
The auditor will document the process from start to finish. For example, if the walkthrough is in relation to the purchase ledger process the auditor will want to see the very first step which may be finding out who is allowed to request a purchase, then who is authorized to raise a purchase order to a supplier. This process will be followed all the way through until the invoice received for the purchase is paid off. By doing this the auditor gets a complete understanding of how the process works every step of the way.
A good walkthrough will also include screenshots of the system at various steps along the way. This allows the auditor to properly document their understanding of the business’ process which is a crucial part of the audit file. Screenshots of the accounting system can add more depth to the walkthrough and allow anyone who reads through it at a later date to get a more detailed understanding of the process as they are able to see what each step actually entails.
It is important that the auditor is clear from the beginning what the purpose of the walkthrough is so that the finance team understands what needs to be prepared and it is also crucial that the finance team are open with their documents and system so that the auditor can get a really clear understanding of how they carry out their day job.
What are the most common type of walkthroughs?
Auditors carry out walkthroughs on the areas they deem to be the most risky. There are areas which will be considered risky on almost all audits and thus the most common audit walkthroughs tend to look at:
- The Revenue/Sales Ledger Process
- The Purchase Ledger Process (often combined with the Inventory process)
- The Payroll Process
Of course, walkthroughs can be carried out on any of the day-to-day processes, however those listed above tend to be the most common.
This explanation can help you to further understand the processes involved in carrying out an audit walkthrough. https://cpahalltalk.com/audit-walkthroughs/