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Test Checking Meaning

1. Examination in depth or audit in depth means examining selected transactions from beginning to end through the entire workflow to understand how the system functions. 2. Test checking involves selecting a representative sample of transactions from a large population to evaluate controls and draw conclusions about the whole population. 3. An audit in depth of a purchase transaction would involve verifying documents from the initial requisition through payment to reconstruct the audit trail and evaluate how the process works.

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656 views4 pages

Test Checking Meaning

1. Examination in depth or audit in depth means examining selected transactions from beginning to end through the entire workflow to understand how the system functions. 2. Test checking involves selecting a representative sample of transactions from a large population to evaluate controls and draw conclusions about the whole population. 3. An audit in depth of a purchase transaction would involve verifying documents from the initial requisition through payment to reconstruct the audit trail and evaluate how the process works.

Uploaded by

Mohamed Abdi-nor ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Test checking meaning:

1 Meaning: Examination in Depth means examination of a few selected transactions from the-

beginning to the end through the entire flow of the transaction. It involves studying the recording

of transactions the various stages through which they have passed.

- Test Checking means to select and examine a representative sample from a large number of

similar items.

- Test Checking is an accepted auditing procedure wherein instead of checking all

transactions, only a part of it is checked in detail to form an opinion on the whole

2. Aspects of Verification

(a) At each stage, relevant records and authorities are examined, it is also judged whether the

person who has | exercised the authority in relation to the transactions is fit to do so in terms of-

the prescribed procedure.

(b) While auditing in depth, the Auditor reviews all the accounting and operational aspects of

the| transaction from the origin to the end. This enables him to have an overall view and evaluate

the

Procedures through selected transactions.

3. A Representative Sample must be open and each item selected must be traced meticulously. :

4. A smaller number of transactions are checked at each successive stage with a in-depth test,

on statistical grounds (based on probability theory) that the optimum sample size decreases as the

Auditor's "level of confidence" concerning the functioning increase.


5. Examination in depth reconstructs the audit trail and reveals more about the functioning (or

malfunctioning) of the client's system in practice than the haphazard and mechanical approach to

testing.

6. Example: Audit in depth of transactions relating to purchase of goods involves verification of

the following:

(a) Purchase Requisition - pie-printed, pre-numbered and authorized.

(b) Invitation of quotations and analysis of the same.

(c) Official Purchase Order, sequentially pre-numbered, authorized and placed with approved

suppliers only.

(d) Receipt of goods, together with Delivery Challan / Advice Note;

(e) Admission of goods to stores after verification of quality, quantity etc.

; (f) Entry in Stores Records;

(g) Receipt of Supplier's Invoice and Statement;

(h) Approval of Purchase Invoice regarding compliance for specification, quantity and quality;

(i) Entries in Purchases day book;

(j) Postings to Purchase Ledger and Purchase Ledger Control Account;

(k) Payment of Cheque in settlement of invoice after availing discounts.


FEATURES OF TEST CHECKING

Test checking consists of selecting and checking a proportion of transactions selected by the

Auditor. The salient features of Test Checking are -

1. Scientific: It is a mathematical truth that a scientifically selected sample would reveal the

features and characteristics of the population. The statistical theory of sampling is based on a

scientific law.

2. Estimation Process: Test Checking and Sampling can never .bring complete reliability; it

cannot give accurate results. It is a process of estimation.

of the individual's judgment in that particular

3. Coverage of material items: Sometimes entries are checked for a few specified months

exhaustively and the rest go unchecked.

4. Full Coverage over a time period: Test Check is normally planned in such a way that

the audit programmes for 3 to 5 years cover all types of transactions in case of a medium or

large sized Company. Thus, if in one year the months of January, June and December are

checked; April, July and September may be checked in the second year and so on.

5. Surprise Element: The staff and management of the Auditee Company should not be

able to anticipate the pattern of test checking, otherwise they will predict the areas and

periods to be covered in any one year and will be careful regarding the same.

6. Flexibility: If test checking becomes routine, predictable and mechanical, it loses its

value. Hence, the Auditor should keep changing the methods of test checking at reasonably

frequent intervals.
7. Judgment Based: The extent of test checking would primarily depend on the Auditor's

judgment of a particular situation. This judgement in turn depends on the previous

experience of the Auditor, current developments and the efficacy of Internal Control

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