Bright Star Foods Limited processes a large volume of daily sales and purchases using automated accounting software. Most transactions are recorded…

There are basically four types of audit tests that should be used. These are inquiry, observation, inspection and reperformance. For example, when testing in an automated environment, some of the more common methods are: (i) Obtain an understanding of how an automated transaction is processed by doing a walkthrough of one end-to-end transaction using a combination of inquiry, observation and inspection. (ii) Observe how a user processes transactions under different scenarios. (iii) Inspect the configuration defined in an application. Inquiry is the most efficient audit test but it also gives the least audit evidence. Hence, inquiry should always be used in combination with any one of the other audit testing methods. Inquiry alone is not sufficient. Re-performance is most effective as an audit test and gives the best audit evidence. However, testing by reperformance could be very time consuming and least efficient most of the time. Generally, applying inquiry in combination with inspection gives the most effective and efficient audit evidence. However, which audit test to use, when and in what combination, is a matter of professional judgment and will vary depending on several factors including risk assessment, control environment, desired level of evidence required, history of errors/misstatements, complexity of business, assertions being addressed etc. The auditor should document the nature of test (or combination of tests) applied along with the judgements in the audit file.