Choice "D" is correct. Audit evidence concerning segregation of duties ordinarily is best obtained by the auditor observing the employees as they apply control procedures. Generally the auditor's direct, personal knowledge obtained through observation, inspection and physical examination is more persuasive than indirect information.
Choice "b" is incorrect. Performing tests of transactions that corroborate management's financial statement assertions would provide little audit evidence concerning segregation of duties.
Choice "c" is incorrect. Obtaining a flowchart of activities performed by available personnel may assist the auditor in understanding the design of the internal control system, but it provides no audit evidence regarding whether the segregation of duties is actually functioning as designed.
Choice "a" is incorrect. Developing audit objectives that reduce control risk provides no audit evidence regarding the segregation of duties.