Audit and Assurance Practice Exam

Walkthroughs play a crucial role in assessing internal controls by tracing a transaction through the system. This process involves selecting a transaction and following it through all the stages of processing, documenting each step it takes within the internal control system. By doing this, auditors can observe how transactions are initiated, authorized, processed, and recorded, allowing them to evaluate whether the controls are designed effectively and operating as intended.

This hands-on approach helps in identifying potential weaknesses or gaps in the internal control processes that could lead to errors or fraud. Through walkthroughs, auditors can provide evidence that the internal controls are functioning as planned, thereby enhancing the reliability of the financial reporting process.

Looking at the other options, drafting a financial statement is not relevant to the assessment process of internal controls, as it focuses on the output rather than the underlying controls. Verifying the independence of an auditor is concerned with ethical standards and does not relate to how internal controls are evaluated. Identifying management fraud, while important, is a broader objective that can be informed by walkthroughs but is not the primary purpose of conducting them. Thus, tracing a transaction is the specific and direct function of walkthroughs in the context of internal control assessment.