What is Test Checking In Audit? A Comprehensive Overview
Test checking in an audit is the process of selecting a sample of transactions or records for examination instead of reviewing all of the transactions. It involves using statistical methods to determine the appropriate sample size and selecting items from that sample for detailed examination.
Test checking ensures that the data examined is accurate and complete by providing reasonable assurance.
This strategy is useful for identifying possible errors, fraud, or other irregularities in financial records or other business operations.
This method saves time and resources and also allows auditors to achieve their objective of providing independent and factual assessments of a company’s financial statements and internal controls. While test checking is essential, it cannot replace a comprehensive audit process as a means of ensuring the absence of errors and fraud. This method completely depends on the auditor’s decision.
Advantages of test checking
- Time-saving
- In the sample test system, instead of all transactions, a few selected transactions are tested. So the audit work can be completed in a short time. It saves time.
- Cost Effective
- Audit-related expenses are relatively less
- Reduce Workload
- With this system workload on the auditor as well as organisation staff is reduced
- Create Mental Pressure
- The employees of the organization under audit cannot know in advance which transaction will be sample tested. As a result, mental pressure is maintained on them. That is why they work with care and caution.
- More Work Possible
- With this system work pressure on the auditor is reduced so the auditor can carry on another project simultaneously.
Disadvantages of test checking
- True and Fair views not disclosed
- As test checking may not detect all errors or frauds a true and fair view of the financial condition of the concerned institution might not be available
- Possibility Of error and fraud
- Not all transactions are checked in this system. Therefore, mistakes or fraud may remain
- Increase in Responsibility
- In this system, the responsibility of the auditor increases. Because not all transactions are checked. He may be held liable for negligence if he is found to have made any mistake or fraud in the future due to doing so.
- Not Suitable for Small Concerns
- Applying the test-checking method to small concerns is not advisable due to the lack of a control system.
- Depend On Internal Control System
- If the audited concern does not have an effective and reliable internal control system in place, the audit cannot be carried out with the help of sample testing.
Auditors Responsibility
Large institutions often use the sample examination method to shorten the time and labour required for auditing. However, the auditor must carefully consider whether to apply this method. Because if the auditor did not check all transactions, if any mistake or fraud is detected in the future, the auditor may be held responsible due to negligence of duty.
He can rely heavily on test checking if the internal audit and preventative measures in place in the organization are satisfactory. It is better not to rely on sample testing for auditing if certain controls are not in place or do not seem effective in the organization.
Precautions for Test Checking
- An auditor must collect samples from different categories of transactions.
- The selection of transactions should be done randomly and not in any particular manner
- It is the auditor’s duty to keep confidential the transactions that have been determined to be examined by the auditor
- The auditor should select a test sample without anyone’s influence or suggestions. Applying his past experience and professional skill.
- Sample transactions should be selected in such a way that the work of all the employees of the organization is tested
- A detailed examination is required without checking the sample of the cashbook and passbook
- The transactions of the first and last month of the financial year must be examined in detail. Because fraud is more likely to happen in those two months.
- The sampling method needs to be changed from time to time. It reduces the chances of fraud
