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Points of review

Planning a small entity audit, doing an analytical review, or looking for evidence of internal controls? John Selwood answers some recent questions from members.

Q My small firm recently had an external cold file review. My reviewer reported that in some cases where internal controls were relied on there was insufficient evidence that they were operating effectively. I thought the walk-through tests provided this evidence. Who is correct?

A Your cold file reviewer is right. It is not uncommon for auditors to misunderstand the nature of a walk-through procedure: it merely demonstrates that the internal controls operate as recorded. A single test very rarely provides evidence that internal controls are operating effectively throughout the period.