Test Checking
Name: Gethzhiya Immanuel Perinparaj
Class: TY B.B.I
Subject: Auditing
Roll no: 22
College name: [Link] college of humanities and science
Submitted to Prof: Mr. Bhaskar Jha
Academic year: 2021-2022
Semester: Sem 5th
Meaning
Test checking is a process of selecting and checking of a few transactions
from a large volume of transactions from a large volume of transactions.
Test checking reduces the volume of work of the auditor, if in test
checking, the auditor finds that the records checked by him are correct
then no further detailed checking is carried out.
Introduction
Testing and test checking means to select and examine a representative sample from a
large number of similar items. In a big business house, it is rather impracticable for an
auditor to check all the [Link] is not only impracticable from economic point
of view but unnecessary as well. So where the number of transactions to be
checked is very large and the time at the disposal of the auditor is little, a few
transactions may be checked at random. Such a checking is known as test checking.
This method will minimise the work of auditor to a very large extend.
All the transactions need not be checked. There is no hard and fast rule of
selecting item for test checking.
What is test checking?
Test checking in audit means checking a few transactions selected at
random from a large number of transactions. It is also known as
“Selective Verification” or “Sampling Process”. It is based on a
simple theme that …IF a representative number of transactions ,
randomly selected by the auditor for test checking is found to be correct,
the rest might be correct too.
Adoption of test checking methods by auditors
The decision to adopt testing methods depends entirely on the auditors
judgement and discretion depending on the individual cases and
circumstances. Test checking
should be applied and carried out intelligently and carefully: otherwise,
it may lead to dangerous consequences. However, the use of test
checking depends much upon the system ofinterna check in operation
and the intelligence of the auditor.
Test checking in audit
Safeguards for the Application of test checking
While applying test checks the auditor should take the following precautions:
1. As
far as possible sample transactions should be selected from every book.
2. The selection of
transactions should be so distributed that the work of almost all the clerks of the client
is checked. 3. The items should be selected at
random. 4. As a fraudulent manipulations are
common during the first and last months of the period under audit, the entries made
during these periods should be checked thoroughly.
5. In the selection of entries and accounts for applying test
checks , care should be taken to check the different portions of the work at each audit.
6. Cash book and pass book should be checked thoroughly.
Advantages of Test Checking
Test checking enjoys the following advantages:
1. It saves time and energy.
2. If the selection of transactions is done intelligently,
test checking is useful and purposeful.
3. The volume of work is
reduced. So the auditor can carry o many audit simultaneously.
4. It helps the auditor to arrive
at a definite conclusion in regard to the true and fair view of the state of affairs of the
concern. 5. It helps in reducing the cost
of audit.
Disadvantages of Test Checking
Test checking suffers from the following disadvantages: 1. It
is not possible to detect all the errors and fraud. 2.
The clerks of the client may become careless because they know that their work will
not be checked in detail. [Link] test
checking, although the auditor checks the whole of the work through test checking,
suspicion and doubt will remain in his mind. [Link] is of no use if
proper and effective systems of internal checks and controls are not being adopted in
business. 5. It is not suitable for small
business concerns
Precautions before applying Test Checking: The auditor must take the
following precautions before he applies test checking for audit
Internal Control:While applying test checking, the auditor must reviews the system of
internal check, internal control or internal audit in detail. If the auditor finds that the internal
control system is either ineffective or defective, he should not apply test checking.
Random Selection: The sample of records, selected for test checking should be taken on
random basis.
Representative: The sample selected for test checking should be representative in
character.
Homogeneity: The auditor should apply test checking if he finds that the transactions to be
checked are homogeneous in nature.
Complete Examination: Cashbook, transfer book and journal should be checked
thoroughly.
Element of business: While applying test checking, there should be no element of bias
in the selection of sample.
Work of each clerk: The sample should include th work of each clerk in the business
concern and cover items from all the books
Transactions not suitable for test checking.
The auditor should examine the following transactions in detail as they are
not suitable for test checking:
Opening and closing entries.
Items which are material.
Bank Reconciliation Statement.
Depreciation.
Royalty.
Presentation and disclosure of information in ‘Profit & Loss Account’ and ‘Balance Sheet’.
Non-recurring or exceptional transactions need not be test checked.
The auditor should not resort to test checking on annual basis in case of seasonal industry.
Managerial remuneration.
Purchase transactions.
Non-Statistical Factors.
Random selection of items.
Manageable size of sample.
Representative sample.
Homogeneous Transaction.
Thank you