Test checking: Precautions, Advantages and Disadvantages

Test checking mean when there is a large data and sufficient time is not available for their examination. Then an auditor will not be in a position to examine 100% data. He examined few transactions and the remaining are left unchecked which are considered checked.

According to Meig,

Testing or 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 numerous transactions. It 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.

There is no hard and fast rule of selecting item for test checking. The justification for test checking lies on the theory of probability which states that a sample selected from a series of items will tend to exhibit the same characteristics present in full series of items which is generally referred to as the population of universe.

Great care should be taken while selecting items. The best method is to have random selection.

It is not advisable to apply test checking to the cash book it should be checked thoroughly. If later, it is noticed that error and frauds have remained undetected the auditor will be held responsible for negligence. The auditor should apply test checking if he is fully satisfied that the internal check system which is prevailing is efficient and no suspicion arises in his mind.

Precautions before applying test checking

The auditor should take certain precautions before applying the test checking.

1. Internal control

The auditor must review the system of internal control before applying the test checking. If he finds that the internal control system is either ineffective or defective he should not apply test checking.

2. Random selection

The sample should be selected from the records on random basis for test checking. The method of selecting the sample should be change from time to time to achieve the desired results.

3. Representative

A sample selected form a series of items will tend to exhibit the same characteristics present in full series.

4. Homogenous transactions

The auditor should apply the test checking if he finds that the transactions under review are homogeneous in nature.

5. Complete examination

Cash book, Transfer book and Journal should be checked thoroughly.

6. Element of bias

While apply test checking there should be no element of bias in the selection of items.

7. Work of each audit clerk

The sample should include the work of each clerk in the business concern and cover the item from all the books.

8. Review

The system of test checking should be reviewed from time to time to bring improvements in the application of test checking.

9. Opening and closing record

To avoid the chances of manipulation of account the auditor should check the opening and closing record of the business thoroughly.

10. Every voucher should be stamped

To avoid the liability for negligence it is necessary that each and every voucher should be atamped even though it is unchecked.

Advantages of test checking

1. Time saving

It saves to time of the auditor from the detailed audit and thus enable the auditor to devote more time to important matters.

2. Saving in energy

It saves the energy of the auditor from the detailed audit and thus enables him to devote energy to some other important matters.

3. Accuracy

Test checking ensures the casting, sub-casting, carry forward posting of transactions in the books to a large extent.

4. Internal control

Before applying the test checking auditor review the internal control system and find the loopholes which cause the improvement in the internal control system.

5. Helpful in short time period

When the time period is short it help the auditor to complete the job of audit work in a short period by adopting test checking.

6. Accounts of many concerns

The auditor is able to complete the audit of accounts of many concerns within stipulated time.

Disadvantages of test checking

1. Error and frauds may remain undetected

Test checking may result into failure to detect errors and frauds as the samples taken for test checking may not include them and they remain uncover.

2. Report may not correct

If some errors and frauds remain undetected, the auditor may not be able to get the correct position of financial state of affairs of the business concern. With the result, his report may not be duly reliable and correct.

3. Increases the responsibility of the auditor:

It increases the responsibility of the auditor to a large extent. He may be held liable for any negligence in the performance of his duty.