Test Checking in Audit | Meaning | Precautions | Merits | Demerits

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“.

Audit Test Checking - Meaning, Precautions, Advantages, Disadvantages

Audit Test Checking – Meaning, Precautions, Advantages, Disadvantages

It is a substitute for detailed checking. It involves only a partial checking. 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.

In simple words in test checking a representative number of entries of each class is selected and checked and, if they are found correct, the remaining entries are also taken to be correct. Test checking is an accepted substitute of detailed checking, which in most of the cases from the economic point of view is unwarranted.

Adoption of test checking methods by auditors

The decision to adopt testing methods depends entirely on the auditor’s 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 of internal check in operation and the intelligence of the auditor.

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 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.

7. The auditor should select the transactions on his own. He should not consult the staff of the client while selecting the transactions.

If the auditor exercises the above safeguards with care and caution, the results are bound to be encouraging and satisfactory.

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 on 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.

3. Under test checking, although the auditor checks the whole of the work through test checking, suspicion and doubt will remain in his mind.

4. It 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.

Leave a Reply




Recent Posts


Related pages


sbic private equitydifference between marginal costing and absorption costingdisadvantages of primary market researchsales promotion disadvantagesdishonor meaningtype of nonprobability samplingsundry creditorskey financial ratios for retail industrydemerits of communismrole of banks as financial intermediariesdifference between condition and warranty in contract lawadvantages and disadvantages of bureaucracyinventory turnover times formulawhat does sebi meanmaker promissory notewhat are the advantages and disadvantages of e commercemultistage and multiphase samplingrevaluation method of depreciation examplesidbi indiaindian contract act bare actwhat does gatt meaninterpretation of comparative balance sheetcalculate leverage ratiocaste system in indian societywhat are the characteristics of a socialist economyprofitability ratios formulaadvantages convenience samplingbrand leveraging definitionabout icici bank historydividend yield ratio analysiscapital budgeting limitationswhat does perpetual inventory meanauthoritarian leader definitionaccounting for petty cashadvantages of denormalizationnon budgetarymeaning of nationalised bank in indiaadvantages of sole tradersbank nationalisationquality control and pre shipment inspectionbills receivable accountskimming pricing strategy definitionwhat is centralization of authoritygearing ratio debt to equitystock market speculatormbo objectivedefinition of capital rationingparticular average loss in marine insuranceforfaitingvoidable contractsproduct costing system definitionrack jobber exampledisadvantages of irrmanagerial accounting functionsessential of valid contractcardboard pigeon holeswhat is amalgamation of companiesdifference between import and export letter of crediteoq formularcheque alterationadvantages of franchising to the franchiseewhat does prospectus mean in financedecentralization definition in managementwhat is command economy advantages & disadvantagesdefinition of business ethicdisadvantages of internal recruitmentfunctions of mgtmarginal costing formatperils insurance definitionmain functions of wtodisadvantages of clustering in data miningfunctions of a wholesalerfeatures of socialist economic systemmeaning of wageringexamples of consumer durableshundies meaningbook for accountingexplain manpower planningdumping in economics