Test checking means examining less then 100% of items in the population i.e. it refers to the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
WHY IT IS REQUIRED
- Auditor usually doesn’t have enough time for detailed 100% examination.
- Numbers of transactions/ Balances are generally very high.
- Mostly items are identical.
- If, on basis of compliance procedures, it is concluded that internal control system is very effective, there is no need for detailed 100% examination.
EXAMPLES WHERE IT MAY NOT BE SUITABLE
- Checking bank reconciliation statement.
- Few transactions, very high in amount.
- Few transactions with related parties.
- Few transactions, having unusual nature.
- Disclosure requirement of accounting standard.
- Compliance with statutory provision.
- Significant entries near/ at year-end.
- Few transactions involving foreign exchange.
- When internal controls are very weak.