Difference between Routine Checking and Test Checking
Routine checking and test checking are common practices used in an audit. They are different from each other in terms of the scope of examination they hold. While routine checking is a kind of detailed examination of each and every item especially to confirm the arithmetical accuracy of entries, test checking is a form of selective verification. Here, only a selected number of transactions are put under scrutiny. In this blog, we have explained the two terms in detail along with bringing out the key differences between them.
Meaning of routine checking
Routine checking is the checking of the daily transactions of a business. It means checking the arithmetical accuracy of the entries in the books of account to detect any clerical errors and minor frauds. All transactions are checked on a regular basis to see that there is no mismatch of debit and credit and that all ledger balances are drawn correctly.
Routine checking helps in the conduct of the final audit because with routine checks already being performed, an auditor can be assured that the balancing and totals of ledger books are correct.
The scope of routine checking and its objectives include the following:
- To verify that the entries made in the books of account are arithmetically correct.
- Checking calculations in the books of original entry with respect to castings, sub-castings, carry forwards, and similar calculations.
- Checking the posting of entries from Journal to Ledger
- Checking the totalling and balancing of all accounts in the ledger
- Checking posting of balances from Ledger to trial balance
Meaning of test checking
Test checking is a method of verification of a selected number of items from an entire population of similar items. Here, an auditor would verify a representative set of items out of all of the client’s transactions. For example, the sample chosen for examination may vary anywhere from 5 to 50% of the total number of items. This technique is a form of partial/selective verification where a random or arbitrary percentage of transactions is selected. However, the quantum of test checking is usually dependent on the judgment or experience of the auditor and his overall assessment of the client’s operations.
Under test checking, the auditor would examine only a few transactions in-depth (out of many) to draw an opinion on the whole of them. If the sample is found to be satisfactory, the rest shall be considered satisfactory too.
Some important points related to the approach of test checking are as follows:
- When there are a significant number of identical or routine transactions, test checking might be used.
- It may be helpful when the auditor needs to certify the accounts shortly after the accounting period ends.
- It may be suitable when the auditor has prior knowledge of the nature of the client’s transactions.
- Test checking is most helpful when an adequate internal control and internal check system is in place.
- The test (or sample) should be chosen by the auditor independently of any inputs from the client’s team.
- The test check should be designed in such a way that a significant amount of each employee’s work gets checked.
- When deciding on the type and size of samples to verify, the auditor should employ his prior experience.
- The auditor should choose entries for test checking with caution, using his judgment and professional skill.
Why test checking rather than routine checking?
In most cases, the volume of transactions in a business concern is so large that it becomes impossible (and unnecessary too) to examine each and every transaction given the fixed and limited time available with an auditor. Here, the test checking approach comes to the rescue. It significantly reduces the workload of the auditor.
It is believed that detailed checking or routine checking of each and every item is considered unnecessary in all situations, hence test checking is mostly used in practice. It is only when an auditor feels that it’s absolutely essential to get deep into an area of assessment that he relies on detailed or in-depth scrutiny.
Drawing a line of distinction between the two
The key differences between test checking and routine checking are compiled in the table below:
|Basis||Routine checking||Test checking|
|Meaning||Routine checking is a form of audit examination in which certain books and records that are common to all types of businesses are checked.||Test checking is an established auditing process in which only a portion of the transactions is verified to form an opinion rather than checking all of the transactions.|
|Objective||The ultimate objective of routine checking is to confirm the arithmetical accuracy of the entries made in the books of account. It also ensures accuracy of the casting of subsidiary books, posting of entries, and balancing of ledger accounts. It further checks the correctness of the trial balance.||The objective of test checking is to obtain a reasonable level of assurance about the authenticity of a group of transactions by verifying only a representative sample.|
|No. of transactions||Each and every transaction is checked here.||Only a few selected transactions are checked.|
|Details||Routine checking is a form of detailed and thorough checking.||Test checking is done on a selective basis.|
|Traditional||It is one of the most traditional systems used in an audit.||Test checking is an unconventional method that has gained a lot of traction over the past few years.|
|Also known as||It is also known as a form of extensive or detailed checking.||Test checking is also known as selective examination.|
|Suitability||Routine checking is most suitable in the case of small entities.||It is most suitable for large businesses where the volume of transactions is enormous.|
|Cost and time||It may prove to be a more expensive and time-taking exercise.||Test checking is somewhat cost-effective and saves time too.|
|Nature of errors||Only clerical errors and frauds of a very ordinary nature can be detected with the help of routine checking.||With test checking, some errors and frauds can go undetected too. There is an element of doubt as well as a risk when only a few transactions are tested.|
|Monotony||Due to its mechanical nature, routine checking can get monotonous at times.||It is not monotonous.|
|Cashbook||Routine checking can be used to verify every entry in the cash book.||For verification of cash book and bank account entries, test checking should not be used as they necessitate 100% checking.|
|Volume of work||It encompasses a huge volume of work.||It reduces the workload of the auditor.|
|Completion of audit work||The work of the auditor increases and this may delay the completion of an audit.||It can assist in the quick completion of audit work.|
|Complicated transactions||Routine checking may form the foundation to identify the risks of material misstatement.||Complicated or material transactions that need more attention may not be apt for test checking. For them, the approach of auditing-in-depth is appropriate to carry out an extensive examination.|
|Internal control||If the internal control system is not effective, the auditor must decide how much comprehensive verification/detailed checking he has to do to be satisfied that the business records are authentic.||Test checking may not be suitable when the internal control system is weak.|
Use of a balanced approach
As stated earlier, a detailed examination of transactions is only possible in a few selected areas due to the constraint of time and resources. Therefore, where the appraisal of the internal control system of a client by the auditor shows satisfactory results, he can put his work to rely on test checking rather than routine checking. If there is an effective internal control system in place, the auditor can stay assured about the authenticity of the client’s operations to a great extent. Thus, he may limit the need for extensive checking.
Nevertheless, these two methods of checking shouldn’t be regarded as a substitute for one another. Rather they are often supplementary to each other. An audit makes combined use of these two methods. Thus, test checking for selected items is often accompanied by routine checking and also examination in-depth, particularly for areas that require more attention.
In addition, test checking does not in any way reduce the responsibility and liability for negligence on part of the auditor. He must exercise extreme care to detect frauds and errors, regardless of the method chosen for verification.
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