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“Perform a walkthrough test to confirm understanding of how the internal controls operate.”
ma’am how is a walkthrough test conducted?
Definition “Walk-through test – involves tracing a few transaction through the financial reporting system”.
So, for example, a sale transaction starts with receiving a customer order. So the auditor asks how are customer orders received (phone? email? order form in a catalogue?) – then what happens to it? Most likely it will be taken down/copied into a standard form – a sales order. Then what happens to that? Someone checks the customer’s payment or that they are approved for credit (evidenced with a signature to approve) before a copy of the sales order goes to the warehouse. The warehouse then picks the goods and despatches them with a “despatch note” (cross-referenced to order). A copy of the despatch note (shows what quantities of which items have been despatched) goes back to accounts to raise the sales invoice (which prices up the quantities) ….
See Chapter 13 for an overview of the “flow” of the main documents in each transaction cycle.
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