AUDIT TEST TYPE GUIDE

TYPES OF AUDIT TESTS

There are various types of audit tests, including:

• Facilitated Meetings • Vouching and Verifying

• Interviewing • Process Mapping
• Questioning • Process Tracing
• Observation and Inspection • Surveys
• Documentation Review • Scanning
• Confirmation/Representation • Reconciliation
• Analytical Review • Recalculation and Valuation
• Data Analysis

The following table defines these types of tests, which might be applied to validate process measures and
controls, and provides some of the advantages and disadvantages of each approach:

Test Description Advantages Disadvantages

Facilitated Meetings • Ideas and different opinions are • The success of the focus group
immediately shared. method is highly dependent on
Inquiry procedures involve
the ability of the facilitator to
discussions with process owners, • Group support for the final
focus the group on the
process staff and key stakeholders decision is gained.
achievement of the meeting
affected by the process –
• Participants have time to think objectives.
customers and suppliers. With
through their contribution
focus groups, many of these • An individual may conform to
towards answers.
people can participate in an active group answers due to real or
interchange of ideas and issues. • Auditees share in the decision- imagined peer pressure.
Example: A facilitated group of making process.
• A significant time investment is
purchasing, accounts payable and
required by management.
manufacturing departments may
be an appropriate session to gain
an understanding of the
purchasing cycle processes.

Interviewing • A direct interface with personnel • The issues conveyed may be

involved in the business merely a one-sided perception
Inquiry procedures involve
process is given, which of management and not actual
discussions with process owners,
facilitates a greater business practice.
process staff and may also involve
understanding of the business.
key stakeholders affected by the • The interview style needs to be
process – customers and • Interviewers have the chance to matched to the auditee –
suppliers. probe for further details. structured, casual or flexible –
to be effective.
An example is developing an • An effective way to identify
understanding of environmental opinions, causes and possible • Data can be difficult to obtain,

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 Test Description Advantages Disadvantages

management controls over solutions to problems is organize and analyze.

emissions of a power station identified.
• Interviewers must be trained to
through discussion with the plant
• Questions are possibly clarified elicit valuable information – this
manager of the facility.
before a response. involves the use of open-ended
questions versus closed-ended
• Interviewees build rapport with
questions.
respondents.
• An unskilled interviewer can
• Nonverbal messages are
make the respondent
received and noted.
uncomfortable or defensive.

Questioning • Accumulated knowledge of the • The potential to alienate the

auditee is used and provides auditee through overly
Questioning is probably the most
management with interpretation aggressive questioning is likely.
pervasive technique used by the
of issues with an opportunity for
auditor who is reviewing
them to provide their views of
operations. This type of testing
the process.
may involve suggesting a
viewpoint of the process to gauge • An attempt to identify "root
management reaction – "pointed causes" of identified errors or
interviewing." issues occurs.
An example is asking management • Information from management,
to explain an unusual fluctuation or which may not have been
error noted in an audit test. volunteered to the audit team, is
easily obtained.

Observation and Inspection • A greater understanding of the • Tests typically need to be

business is provided through corroborated with other
Observing involves a careful,
audit involvement with procedures.
knowledgeable look at documents
operational personnel.
processed, activities and assets. • Tests are potentially time
It’s a visual examination with a • The information collected consuming.
purpose and a mental comparison reflects actual behavior.
• Recording data and observing
with standards.
• The information collected is large numbers of people are
An example is sighting employees current and not retrospective. difficult.
recorded on a firm's payroll or
• Random observations may not
observing quality control inspection
provide an adequate evaluation
processes on a production line
of the process due to
fluctuations in volume or
activity.
• Workers may alter their
behavior if they know their work
is being reviewed.

Documentation Review • Information is unobtrusive. • A skilled auditor is needed to

apply historical documents to
This involves a review of existing • Information is highly valid as
the current situation and to
reports and documents to identify data is quantifiable, historical
identify areas where
controls, to understand the and objective.
interpretation is required of the
business or process, and to
• A strong base to build questions document.
provide evidence when supporting
is used.
audit conclusions. • Auditors may incorrectly
assume that procedural manual

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 Test Description Advantages Disadvantages

Examples include reviewing documentation, as provided, is

environmental compliance available to and used by
manuals, key business contracts, intended users.
operational/procedural
• Risks may be misinterpreted
documentation or company or
without involving client
committee minutes.
personnel in the review or
corroborating the results
through other types of audit
tests.

Confirmation/Representation • Confirmation/representation is • Confirmation and

viewed as reliable audit representations should be
A confirmation or representation is
evidence. corroborated with other
frequently prepared by the auditor,
information gained through
completed by the relevant party • This tool is useful for evaluating
alternative audit testing.
and delivered directly back to the whether “relevant party” is
auditor. Confirmations and prepared to formally confirm or • Confirmations from relevant and
representations may be obtained represent. For example, appropriate people need to be
either externally or internally. management may state in an obtained.
interview that controls are
An example may be obtaining
sufficient but may be reluctant
representations from an insurance
to sign a document that
agent that they had complied with
represents this.
certain agent policy conditions or
obtaining representations from
management regarding their
opinion of controls over the audit
area.

Analytical Review • A sound basis for determining • A lack of availability of

the reasonableness of historical appropriate and reliable data
The comparison of
or forecast data is utilized. may limit the ability to develop
interrelationships among sets of
effective analytical procedures.
data and the comparison of these • A strong understanding of
relationships with some predefined business activities and • Unstable operating
expected relationship may be relationships occurs and environments create increasing
referred to as analytical testing. provides a structured basis for difficulties when predicting
identifying areas requiring relationships.
Analytical tests include:
further analysis.
• Trend analysis, such as
• Reviews can be used effectively
fluctuation analysis
as audit tests to assess the
• Benchmarking, such as industry need for more detailed audit
averages, predetermined testing.
budgets or standards
• Reviews can be used during
• Ratio analysis, such as financial initial stages of the audit to
ratios or process-related ratios identify problem areas to focus
audit reviews/testing.
• Modeling techniques, such as
reasonableness tests or
frequency distribution analysis

Data Analysis and Exception • A more scientific and rigorous • Significantly identified exception
Tests approach than scanning type items need to be evaluated in
procedures is provided. the overall business context.

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 Test Description Advantages Disadvantages

The analysis and query of • Tests are used effectively to • Data required may not be
historical data files to identify quantify the significance or available in a readily usable
trends, problems areas, incidence of a certain event or format and may become costly
exceptions, etc. nonevent. to "manipulate."
Examples include: • Data analysis can be used to
understand the volume or
• Stratify a data file to identify
magnitude of certain events or
types of codes and related
values, which may assist in
quantities.
further refined and limited audit
• Stratify a data file to identify the testing.
frequency of payments by
• Sample files can be selected
amounts in selected intervals.
automatically.
• Identify duplicates or gaps.
• Efficient, accurate methods of
• Create an aging summary of analyzing a large amount of
receivables or identify debtors data are utilized.
who exceed their credit limits.
• An ideal application for
statistical sampling and/or
CAATS is used.

Vouching and Verifying • This is the most efficient and • The method and
effective audit procedure to reasonableness of sample
This tests to prove that recorded
verify management assertion. selection of items to vouch have
events or values took place
a significant bearing on the
through an examination of • "Hard" audit evidence of certain
appropriateness of conclusions
supporting documents or systems. infractions or errors is provided.
that may be drawn. Particular
Detailed examination of a set of
• “Hard" audit evidence that consideration must be made of
worker's compensation files for
stated controls are operating whether to select vouching
evidence of doctor's certificates for
effectively is provided. samples based on a statistical
certain dates of work absence is
selection of sample sizes and
an example of a vouching test.
items or to judgmentally select
An example of verifying may be items for review.
verifying propriety charges made
by contractors to certain
construction projects.

Process Mapping • A clear documentation trail to • Determining the proper level of

support an evaluation of detail to process map may be
Process mapping analysis may be
controls or processes is difficult.
used as a test of business
provided.
practices. In particular, where the • Process mapping may not meet
completeness of controls or logic • A complete technique for requirements if a structured
of business procedures are being assessing a process is detailed flow chart is required.
assessed, process mapping provided.
• Process mapping analysis can
provides a tool to identify
• This process is readily be time consuming.
weaknesses or inefficiencies. This
understood by the client.
macro type evaluation is an audit
test.
An example may be assessing a
process map of an accounts
payable function for excessive
authorization controls.

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 Test Description Advantages Disadvantages

"Walk-Through" • Process tracing may be used to • Workers may alter their

verify that controls exist to behavior if they know their work
Tracing procedures beginning with
ensure that transactions are is being reviewed.
original documents and following
complete.
their life cycle through the process. • Samples selected for testing
• Process errors not identified may be too subjective and not
An example may be performing a
through other audit steps may reflective of trends in the
walk-through of daily shipping
be identified. business process.
document handling with the goods
receiving department to verify that • Walk-throughs may be used to
processed mapped controls exist. confirm process understanding
gained through process
mapping.

Surveys • Surveys are an efficient and • Time and technical skills to

confidential method of obtaining develop an effective survey
Surveys are commonly used to
information. instrument are required.
gauge perceptions of business
activity. • They reach a large group in a
limited time.
For example, a survey of a pension
fund administrator's customers • Responses are quantifiable.
may provide valuable process
• Special training is not needed.
information as to customer
perception of claim handling • Questionnaires can be
efficiency, new member processing developed based on the
and retiring benefit procedure company's procedural manuals
efficiency. or standards of conduct to gain
comfort over management
controls in certain areas.

Scanning • This method of identifying • Scanning may not be effective if

unusual items is cost-effective. unusual items are difficult to
A less detailed procedure that is
identify or the auditor is
intended to detect the unusual. • A trained auditor can detect
inexperienced at spotting
The effectiveness of scanning unusual items very efficiently
unusual items.
depends on the auditor's ability to and search for correlations or
identify the "unusual" items and sift notice consistencies in the data • The likelihood of not detecting
through large quantities of data to previously unrecognized. errors increases with the
flag unusual items. volume of data.
An example may be reviewing the
check register of a company
location for unusual payees and/or
unusual payment amounts.

Reconciliation • Valuable insight as to business • Reconciliation is time

issues and risks underlying the consuming.
A specific purpose audit test
process may be provided. For
designed to analyze variances • Root causes may not
example, a detailed book to
between two sets of similar necessarily be identified.
physical analysis may identify
information.
problems in goods dispatch and
An example would be preparing or inventory production recording
reviewing a reconciliation of and monitoring processes. It
differences between a physical may disclose incidents of fraud.
stock count and company

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 Test Description Advantages Disadvantages

inventory records.

Recalculation and Valuation • This is the most efficient • It is important to view the
tests method to evaluate the outcome calculation in terms of total audit
of a certain process. risk – for example, recalculation
Amounts or values are
of interest income may not be
recalculated by the auditor to verify
useful if one-third of loans will
their accuracy or to assess the
never be collected.
reasonableness of the final
valuation. • Recalculation may be complex
and time consuming.
• The assistance of outside
experts, particularly where a
valuation is being assessed,
may be required – for example,
the internal auditor's
assessment of the accuracy of
stockpile inventory recording
processes.

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