All 18 Internal Controls Evaluation questions
More in Internal Controls Evaluation
What is segregation of duties? What is the control environment and why is it foundational? What is a walkthrough test? What is the difference between preventive and detective controls? What is the difference between design effectiveness and operating effectiveness? What are entity-level controls versus process-level (transaction) controls? What is the difference between manual and automated controls? When does the auditor decide to test controls versus take a fully substantive approach? How do you document the understanding of internal controls? What are compensating controls and how do they affect the audit?
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Auditing & Assurance › Internal Controls Evaluation

How does the auditor obtain an understanding of internal control?

Intermediate

Answer

The auditor gains understanding through inquiry of personnel, observation of controls in operation, inspection of documents and reports, and walkthroughs (tracing a transaction from initiation through the system to the financial statements). This identifies the controls relevant to the audit and whether they're designed effectively and implemented.
Real-world example A walkthrough of one sales order from entry to cash receipt confirms how the controls are designed and operate.

Common follow-ups: What is a walkthrough? | What does understanding controls achieve?

Audit Evidence & Procedures Audit Risk & Materiality Internal Controls Evaluation
All 18 Internal Controls Evaluation questions