Big business houses have a lot of transactions. So, it is very difficult to check all the transactions in detail. An auditor needs to prepare and present report in short period of time. So, an auditor checks the sample transactions and prepares and presents report to the concern authority which is known as 'Test Check'. An auditor checks the books of accounts of a particular time or area if there is no any doubt, s/he proves the account as true and fair, otherwise auditor checks in detail where s/he has doubts.
But if any errors or frauds are left out due to random sampling, auditor will be responsible for such losses. So, an auditor applies test check if internal check is effective in the organization.
Following points are to be taken into consideration while applying test check:
1. Sample should be selected from the various books of account and of different times.
2. Transactions related to beginning and ending period of particular year should be checked in detail.
3. Transaction related to cash and stock should be checked in detail.
4. Sample selection is to be made in random basis, not in planned way.
5. Detail check of Bank Reconciliation Statement is necessary.
Advantages Of Test Check
Following advantages can be obtained while applying test check:
1. Test check helps an auditor to complete work in less time because test of few transactions can be made.
2. An auditor can complete the work of audit of various organizations within stipulated time.
3. Test check saves labor, time and cost of man auditor. So, an auditor can check in detail the specific items rather than checking similar items.
4. Test check give assurance of accuracy and reliability of transactions to some extent.
5. Accounting staffs remain alert and careful because auditor checks the transactions of various times in random basis.
Disadvantages Of Test Check
1. There are chances of living errors and frauds because transactions with frauds may be left out from audit.
2. Result presented by income statement may be incorrect and report presented to the management may not be true due to the use of test check.
3. Test check increases the responsibility of auditor because an auditor should be responsible for the undetected errors and frauds due to application of test check.
4. Test check is not suitable method for the audit of small organizations.