It is a procedure undertaken by the financial auditor of the company to trace the audit trail of the company from the start to the end of a transaction you can say it is a type of examination in depth of a transaction from the start to the key of financial statements and cash flow statements.
Yes I know that the auditor checks at every stage of audit trail the internal control system are operating effectively or not.
it simply means to sit with accounts staff and understand and view flow of transaction through systems from start till end, to understand how system process a transaction, it gives understanding about internal control system, it is starting point of test of control, we cannot conclude anything on the basis on just walk through tests, it can give some evidence but then we have to perform enhanced test on controls to conclude about test controls
please read below matter and ask doubts in answer section
“walk-through” test that is, tracing a few transactions through the accounting system. When the transactions selected are typical of those transactions that pass through the system, this procedure may be treated as part of the tests of control. The nature and extent of walk through tests performed by the auditor are such that they alone would not provide sufficient appropriate audit evidence to support a control risk assessment which is less than high.
In detail (here they have elaborated its scope and cover some things of test of controls, but as said earlier it should be considered as starting of test on control)
A walk through is a procedure in which an auditor traces a transaction from its initiation through the company’s information systems to the point when it is reflected in the financial reports. The auditor should perform one walk through, at a minimum, for each major class of transactions. A walk-through provides evidence to confirm that the auditor understands (1) the process flow of transactions, (2) the design of identified controls for internal control components, including those related to preventing and detecting fraud, and (3) whether all points in the process have been identified at which misstatements related to relevant financial statement assertion could occur.
Walk through also provide evidence to evaluate the effectiveness of the controls’ design and confirm that the controls have been placed in operation.
When performing a walk-through, the auditor should:
(i) Be sure that the walk-through encompasses the complete process (initiation, authorization, recording, processing and reporting) for each significant process identified, including controls intended to address fraud risk.
(ii) Ask the entity’s personnel, at each of key stage in the process, about their understanding of what the company’s prescribed procedures require.
(iii) Determine whether processing procedures are performed as expected on a timely basis, and look for any exceptions to prescribed procedures and controls.
(iv) Evaluate the quality of evidence provided and perform procedures that produce a level of evidence consistent with the auditor’s objectives. The auditor should follow the whole process, using the same documents and technology that company staff use, asking questions of different personnel at each significant stage and asking follow- up questions to identify any abuse of controls or fraud indicators.
Once a walk-through is performed, the auditor may carry forward the documentation, noting updates, unless significant changes make preparation of new documentation more efficient. If such significant changes occur in the process flow of transactions or supporting computer applications, the auditor should evaluate the nature of changes and the effect on related accounts. The auditor should determine whether it is necessary to walk through transactions that were processed both before and after the change.