Test checking, also known as selective verification or sampling, involves auditors randomly selecting a representative number of transactions from an account or period to check, rather than checking all transactions. If the sample transactions are found to be accurate, it is assumed the non-checked transactions are also accurate. There are various techniques used for test checking, including inquiry, observation, examination of evidence, and re-performance of calculations. While it reduces the time and cost of a full audit, test checking carries risks such as not detecting all errors and fraud. Auditors must carefully select samples to draw valid conclusions from test checking.

1. TEST CHECKING
AND TECHNIQUES
Dr. A. HELDA MARY

2. 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 a substitute for detailed checking. It involves only a partial
checking. It is based on a simple theme that

3. 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.

4. 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.

5. Safeguards for the Application of Test Checking While applying test checks
the auditor should take the following precautions:
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.

6. 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.

7. 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.

8. 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.

9. Testing Methods Used During Audit Procedures :
There are five core testing methods that auditors use to confirm the facts and
answers that a business wants to attain during an audit. The nature of these test
methods focuses on everything from asking probing questions to inspecting
documents and re-performing calculations.
Each testing method helps the auditor issue a well-informed opinion, based on
evidence. Further, it provides the auditor with the information needed to provide
qualified conclusions, whether the business is operating optimally, and
managing risks properly.

10. These are the five types of testing methods used during
audits.
1.Inquiry
2.Observation
3.Examination or Inspection of Evidence
4.Re-performance
5.Computer Assisted Audit Technique (CAAT)

11. Techniques of audit:
AUDIT PROCEDURES • Audit procedures are ways of applying techniques to particular phase of an
audit. • Generally, the attainment of the audit objectives required the collection of the evidence to support a
decision.
4. Kinds of audit techniques • Posting verification • Extension verification • Vouching • Confirmations •
Physical examination • Reconciliation • Testing .Analysis of financial statements • Scanning •
Documentary examination • Flow charting • Electronic data processing • Inspection • Observation
Enquiry • Computations • Management representations • Sampling techniques • Compliance test •
Substantive tests • Analytical review • Use of computer- assisted audit techniques

12. Posting Verification – Verification of items by one source to another source – To establish the authencity
and consistency of recording process • Extension Verification – Multiplying two or more accounts to prove
the accuracy of the total
Vouching – An examination of all original evidences – To proving the accuracy of the entries in the books
of accounts • Confirmation – To ascertain the correctness of the figures and validity of the client’s record –
With the third party
Testing – Selection of representative items from the records and examining them for reaching on
conclusion about the trend • Analysis of Financial Statement – Uses various Financial Ratios horizontally
and vertically
Physical Examination – Includes inspection, counting, identification and measurement of quantity – May
observe the process of stocktaking • Reconciliation – Reconcile two or more related items if they are not
agree or match with each other

13. TESTING – Selection of representative items from the records and examining them for reaching a
conclusion about trend of activity. – Items must be sufficiently representative of whole data. • Analysis of
Financial Statements – Financial ratios – Horizontal and Vertical comparison – Relationship with Industry
averages
Documentary Examination – Same as Vouching in nature – To examine the adequacy and reliability •
Scanning – Make a wide search to find out which of the entries are regular, consistent and logical
Observation – Observe the various policies and procedures or plans followed by the client • Flow Charting
– To describe graphically the issue of transactions through different stages

14. Inspection – Arrange an inspection of the client’s office, plant, branches etc. – To obtain the
understanding of plant layout, manufacturing processes, product, control and safeguard of
inventories etc. – Should inspect before examination and review
Enquiry • Computation • Management Representation •
Sampling Techniques • Compliance Techniques • Substantive Testing • Analytical Review •
Computer Assisted Accounting Techniques
Obtaining Management Representation • Important evidence in form of – summary of oral
discussions with management – Written representation from management • Should be addressed
to the auditor contain Specified information • Its procedure must be agreed with client in early
stage of audit.

15. Design of the sample • Audit objectives • Population • Risk and assurance •
Tolerable errors • Expecting errors in the population • Sratification
Evaluation of the sample • Analyse any errors detected in the sample • Project
the errors found in the sample to the population • Assess the sampling
Compliance test • Compliance tests are the proceduers desugned to obtain
reasonable assurance of the internal control, that it is effective and reliable •
These tests include procedures requiring inspections of documents suporting
transactions to gain evidence that control have operated properly.

16. Substantive test • Substantive tests are those tests of transactions and balances
and other procedures which privides audit evidence as to the completeness,
accuracy and validity of the information contain in the accounting records or in
the financial statements., like analytical review
Methods of substantive test: 1. Inspection of the documents 2. Inspection of
assets 3. Direct confirmations 4. Reperformance of computations

17. THANK YOU