AAA – L3 – SA – Q4.5 – Audit evidence

How does an auditor verify understanding of a transaction process and its controls?

Question

An auditor checks his understanding of a transaction process and its internal controls by means of:

A ATTs

B tests of controls

C substantive tests

D walk-through tests

Answer

Explanation: Walk-through tests involve tracing a transaction from initiation through to its recording in the financial statements to confirm the auditor’s understanding of the process and its internal controls. ATTs (A) are not a recognized audit procedure. Tests of controls (B) assess the operating effectiveness of controls, not the understanding of the process. Substantive tests (C) focus on verifying financial statement balances, not process understanding.

Tags: Audit Procedures, Evidence collection, Internal controls, Transaction process, Walk-through tests
Level: Level 3

Topic: Audit Evidence

Uploader: Salamat Hamid