Walk-Through Test: Definition and How It Works in Accounting

What Is a Walk-Through Test?

A walk-through test is a procedure used during an audit of an entity’s accounting system to gauge its reliability. It traces a transaction step-by-step through the accounting system from inception to disposition. Walk-throughs can address weaknesses and problems in the system.

Key Takeaways

• Walk-through tests are audits of accounting systems that gauge reliability.
• These tests reveal deficiencies and material weaknesses in a company’s accounting systems.
• Auditors watch the company’s staff and analyze created documents to identify weak points.
• The American Institute of Certified Public Accountants (AICPA) recommends walk-through tests annually.

Understanding Walk-Through Tests

A walk-through test is one of many tests performed by auditors during their evaluation of an organization’s accounting controls and risk management measures. It reveals system deficiencies and material weaknesses that should be rectified as soon as possible.

During a walk-through test, an auditor studies how a transaction moves through a company’s accounting system. This involves identifying how a transaction is authorized, recorded, and reported in the general ledger. The auditor evaluates the accuracy controls at each step and the follow-up steps taken to improve controls.

A good walk-through test documents the personnel involved in transaction entries and uses checklists and flowcharts. The AICPA recommends walk-through tests annually.

Walk-through tests don’t have to be a formal process. Small businesses may perform walk-through tests without keeping detailed records or assessing accounting records. The auditor observes and makes inquiries without reviewing the transaction’s paperwork or paper trail.

Special Considerations

Although a walk-through test can be done by asking employee questions, this method is not recommended. Observing employees and analyzing paperwork is a better approach to understanding a company’s accounting process.

Example of a Walk-Through Test

A walk-through test includes a visual assessment of how staff operates when recording a transaction. The auditor talks with anyone who handles the transaction and reviews related documents. Accounting controls may also be tested.

At the end of the walk-through, the auditor outlines the weaknesses in how the transaction was handled. The purpose is to correct these weak points and improve the company’s accounting system.