Definition
Directional testing is when auditors obtain sufficient and appropriate audit evidence from a specific direction. The directional testing can be either debit or credit depending on the choice of auditor.
For instance, auditors can review purchases (debit side) and skip accounts payable (credit side). Although, it’s not the best practice. However, it’s a concept and directional testing is used to design audit procedures.
Explanation of the directional testing
As we understand, all accounting entries are posted using a double-entry accounting system. In fact, transactions posted with a single side are incorrect. And, the posting of the transaction using double-entry enables the auditor to apply directional testing.
The concept is simple, if you verify the debit side of the transaction, the credit side is automatically verified. In other words, the auditor only needs to plan and perform audit procedures either for the credit/debit side.
This enables the auditor to verify the transaction via directional testing.
Example of directional testing
Suppose during audit fieldwork at Alpha plc; you note that a significant balance is payable to the equipment supplier.
You intend to apply directional test to obtain audit evidence on this account balance. Let’s look at accounting entry and how directional test can be applied.
| Particulars | Debit | Credit |
| Equipment purchased | XXX | |
| Accounts payable | XXX |
The debit impact of the transaction is recorded for the equipment purchased. This leads to an increase in asset balance. On the other hand, the credit impact of the transaction is recorded for the accounts payable (liability).
The application of directional test enables the auditor to assess either the debit or credit side. So, if the auditor decides to verify the debit side, it can plan procedures for the equipment purchased and skip the credit side.
On the other hand, the auditor may also verify the credit side by planning and performing audit procedures on the accounts payable by skipping debit side.
Conclusion
Directional testing is a smart audit approach. It enables an auditor to obtain audit evidence by working either on the debit or credit side.
As we understand that each accounting transaction is posted using a double-entry approach. So, if the auditor has verified debit, credit is not verified and vice versa.
