Sampling/Test Checking in Auditing

MEANING

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.
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