Increasing Audit Profits Series No. 15--Maximizing Substantive Evidence from Risk Assessment Procedures--Part Three | AccountingWEB

Increasing Audit Profits Series No. 15--Maximizing Substantive Evidence from Risk Assessment Procedures--Part Three

Systems Walk-Through Procedure

Discussed in a previous blog, flowchart documentation of an entity’s accounting and internal control systems is becoming recognized as one of the most cost-beneficial forms of audit documentation.  Flowcharts are easy to prepare electronically, facilitate identification of control deficiencies and can be replicated and updated in future years.  Most importantly, flowcharts provide the documentation to effectively and efficiently guide a systems walk-through procedure.

The system’s walk-through procedure is a cost-efficient, annual risk assessment procedure auditors can use to evidence an understanding of an entity’s internal controls as specified in SAS No.109. It is performed by tracing documents and data through the accounting system from the inception of transaction cycles to their termination.  Its primary purpose is to provide a good understanding of the accounting system and any control procedures or activities for control risk assessment purposes.

To utilize the results of a prior period’s control risk assessment in assessing the risk in a current period, current documentation of internal controls and a systems walk-through procedure for all significant transactions cycles is considered the minimum evidence necessary to satisfy the applicable requirements of SAS No. 109.  Selecting two to five sample units for each type of transaction is normally considered sufficient for this purpose.  

The systems walk-through procedure, on the other hand, offers an excellent opportunity to maximize substantive evidence from risk assessment procedures.  Assuming an entity’s financial reporting process is enhanced by a formal or informal internal control system, an auditor may be able to assess control risk (and ultimately risk of material misstatement) at some level less than high by increasing the number of units selected for the systems walk-through procedure.  Performing walk-through procedures for ten to fifteen transactions in each cycle without error, for example, may produce substantive evidence sufficient to reduce control risk to slightly less than high or even to a moderate level.

Coupled with documentation of the results from reading the general ledger, flowchart documentation of internal controls, a systems walk-through procedure and a prior year control risk assessment less than high will provide an understanding of a client’s entity and environment which, along with substantive evidence from other risk assessment procedures, can reduce the required evidence from more costly tests of balances procedures.  For example, lower assessed risk in the sales and collections cycle may permit fewer positive confirmations of individually significant accounts receivable balances.  Since each confirmation, on the average, requires 30 minutes of audit time charges, eliminating five or ten confirmations can save several hours.

To say it another way, as a result of maximizing substantive evidence from risk assessment procedures, an auditor may be able to use lesser reliable procedures (nature) for small details of an account balance, lesser audit coverage of an account balance (extent) and/or perform some procedures before yearend (timing).  Substantial time savings are possible, even for some smaller audits!  

Developing cost-beneficial audit strategies and maximizing substantive evidence from risk assessment procedures is discussed and illustrated in my live and on-demand webcasts.   You can obtain syllabuses and register by clicking the applicable box on the left side of the home page on my website,

This blog

by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs.  He is co-founder of CPA Firm Support Services, LLC (, an organization providing resources, training and consulting to smaller CPA firms.  Larry writes a weekly blog on focusing on small audits, reviews and compilations.  He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.


Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".


William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.


Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (, a software development firm of high-volume, high-productivity accounting and payroll technology.


Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.


Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.


The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.


FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.


Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.


Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of a website devoted to training for governmental auditors.


AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish share their ideas, insights, and perspectives from across the pond.