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Unit 2. Test Checking, Test Checking Methods:, Note - Coggle Diagram
Unit 2. Test Checking
Precautions for Test Checking:
Review internal control
Past experiences influence
Transactions from various books
Homogeneous transactions
Adequate sample size
Client unaware of test period
Random selection
Different test month next year
Check first & last months
Examine test check results
Detailed cash & stock checks
Independent selection
Apply professional skill
Check work of each employee
Test Checking Not Applicable:
Bank reconciliation
Very high amounts
Seasonal fluctuations
Related parties
Unusual nature
Accounting standards
Statutory compliance
Computation/calculations
Year-end entries
Foreign exchange
Balance sheet & P&L
Weak internal controls
Advantages of Test Checking:
Cost reduction
Speedy audit
Identifying deficiencies
Labor saving
Partial accuracy assurance
Purposeful approach
Staff alertness
Definite conclusions
Timely completion
Detailed item checking
Scientific risk assessment
Disadvantages of Test Checking:
Incomplete error detection
Increased client carelessness
Lingering suspicion
Ineffective internal controls
Complexity not covered
Not suitable for small businesses
Inaccurate results with improper samples
Lack of consistency in percentage checks
Risk measurement difficulty
Auditor's duties
Representative of all
Regardless of staff suggestions
apply skill
Not for CB or PB
Not for first & Last month of year
Each employee's work
Different Portions
Test Checking Situations:
Large volumes, routine transactions
Large transactions
Quick certification required
Past experience knowledge
Good internal controls
Test Checking Methods:
Inquiry
Observation
Examination/Inspection
Re-performance
CAAT (Computer Assisted Audit Technique)
Note