What it means
Auditors need to know how a business really handles its transactions before they decide what to test. A walk-through gives them that understanding by tracing a real example through each step, such as a customer order from receipt to cash collected and recorded.
The auditor typically combines several methods. They ask questions of the people who do the work, observe the tasks being performed, inspect the documents created at each stage and, where it adds value, repeat a task themselves to see if they arrive at the same result.
The test highlights where errors could arise and whether a control is built to catch them. For example, if a purchase order needs approval above a limit, the auditor looks for the approval on the selected order, rather than relying on a policy statement.
A walk-through usually covers one item per significant process, so it provides limited assurance by itself. If it shows that a control is designed well, the auditor can then test a larger sample to see whether the control worked consistently through the period.
Management benefits as well. A walk-through often exposes duplicated steps, missing sign-offs and informal workarounds that are not in the procedures manual, so finance teams sometimes run their own to prepare for an audit.
The result is normally documented in a short narrative or flowchart that shows each step, the person responsible and the control in operation. That record becomes part of the audit file and is the starting point for deciding which controls will be tested in more depth.
In practice
Real-world examples.
Example
An auditor of a distribution company selects one customer order and follows it from the sales order, through the warehouse pick list and delivery note, to the invoice and the receipt of cash in the bank. At each stage, she notes who performs the task and what control is applied. The journey shows that invoices are raised before delivery confirmation, which she flags for further testing. She records the finding in the audit file for the engagement team.
Example
An auditor reviewing payroll picks one employee and traces a monthly payment from the approved timesheet to the payroll calculation, the bank transfer and the general ledger entry. He checks that a second person approves changes to bank details. The test confirms the control is in place as described. He then selects a larger sample of payments for detailed testing later in the audit.
Example
A finance team prepares for its audit by tracing a supplier invoice from receipt to payment. It finds that invoices above $5,000 are meant to have two approvals, but one step happens only by email. The team formalises the step before the auditors arrive. The change avoids a likely finding in the audit report.
Case study
Seen in the real world.
Clearwater Textiles is an illustrative, fictional manufacturer that sells to retailers. In the first year of its audit, the engagement team performed a walk-through of the sales process using an order for $48,000 of fabric.
The auditor discovered that the credit limit check described in the company manual was done by a sales manager verbally rather than in the system. There was no record that the check had happened, so the control existed only on paper. She reported the gap to the finance director at the end of the visit.
In the illustrative sequel, the company added a system block that held orders above a customer's credit limit until a finance approver released them. The auditors then tested a larger sample of orders for the year and could rely on the new control for the following period. The company's management also agreed to run its own walk-through before each future audit.
Watch out
Common mistakes.
- Treating the walk-through as proof that a control worked all year, when it only confirms the design and implementation for one transaction.
- Choosing a very simple transaction, which can miss exceptions and unusual routes through the process.
- Relying on process descriptions alone, without inspecting real documents and speaking to the people who perform the work.
Questions
People also ask.
What is the difference between a walk-through and a test of controls?
A walk-through traces one item to understand the process and the design of controls, while a test of controls samples many items to see if the controls operated effectively.
Who performs a walk-through?
External auditors normally do, although internal auditors and finance teams use the same technique to review processes.
How often is a walk-through repeated?
Auditors usually repeat it when processes or systems change significantly, and some update it every year to confirm their understanding. A new accounting system, a merger or a change in key staff are common triggers for a fresh walk-through.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%