Testing 6 / 6

There are 4 types of testing:

  1. Walkthrough testing

    This involves documenting the subject of an audit and then tracing one or more events or examples from start to finish in order to confirm the auditor’s understanding and any controls in place. Techniques for this kind of documentation process include narrative notes, flowcharts, questionnaires and checklists.

  2. Tests of control

    These activities test whether any controls are operating as they should – for example, whether purchases have been authorised in accordance with the organisation’s control procedures on suitable amounts and authorised signatories.

  3. Substantive testing

    This tests whether individual events are valid – for example, sales made to customers may be verified by reviewing amounts received to ensure they should be recognised, that the correct amount was received by tracing it back to the sales invoice, and that sums received were recorded in the correct accounting period. Auditors will often increase the level of substantive testing if controls are assessed as weak or the area is considered high risk.

  4. Analytical review

    Analytical review involves analysing data to identify trends, errors or issues (such as gross margin, gearing, return on capital employed (ROCE) and revenue per square foot). To be effective, analytical review should involve comparing data with an expectation (for example, key financial ratios should either be stable year on year or should reflect conditions from that year).