Testchecking

Testchecking is a procedure used in auditing to verify the accuracy of certain items in financial records, allowing the auditor to form an opinion about the entire account.
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Definition

Testchecking refers to the practice of examining a subset of items within a financial record to determine the accuracy and validity of the entire account. This method is used by auditors to form an opinion on whether the financial statements are free from material misstatement. The items that are testchecked are selected based on a representative sample.

Examples

  1. Entertainment Expense Vouchers: An auditor may choose to testcheck every fifth entertainment expense voucher to ensure each has supporting documentation and has been properly approved.
  2. Sales Invoices: An auditor could testcheck every tenth sales invoice to confirm that the recorded sales are backed by appropriate invoices and that they have been correctly recorded.
  3. Purchase Orders: Reviewing every third purchase order can help verify that the orders have been authorized, issued, and fulfilled according to company policies.

Frequently Asked Questions (FAQs)

Q1: Why do auditors use testchecking?

A1: Auditors use testchecking to efficiently verify the accuracy of financial records without reviewing every single item, which can be very time-consuming and costly.

Q2: How are items selected for testchecking?

A2: Items selected for testchecking are usually chosen based on a representative sample. This can be a random selection or systematic sampling, such as selecting every fifth transaction.

Q3: What evidence is required for testchecking?

A3: Testchecking requires supporting documentation for the selected items. This documentation may include receipts, invoices, approval signatures, and other relevant records.

Q4: What if errors are found during testchecking?

A4: If errors are found, auditors may need to expand the scope of their testing to determine the extent of inaccuracies and assess the impact on the entire financial record.

Q5: Can testchecking be relied upon completely?

A5: While testchecking is a useful tool, it is not infallible. Auditors must use professional judgment to decide when further testing is necessary.

  • Sampling: The process of selecting a subset of items from a larger pool for the purpose of analysis.
  • Audit Evidence: Information used by auditors to reach conclusions and form opinions on financial statements.
  • Material Misstatement: An error or omission in the financial statements that could influence the economic decisions of users.
  • Internal Control: Processes and procedures implemented by an organization to ensure the integrity of financial and accounting information.

Online References

Suggested Books for Further Studies

  • Auditing and Assurance Services: An Integrated Approach by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley
  • Principles of Auditing & Other Assurance Services by Ray Whittington and Kurt Pany
  • Modern Auditing: Assurance Services and the Integrity of Financial Reporting by William C. Boynton and Raymond N. Johnson

Fundamentals of Testchecking: Auditing Basics Quiz

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