In this blog, we have discussed the term “routine checking” and its scope in auditing.
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.
It is a traditional system of audit wherein all transactions as recorded in the books of original entry and the subsidiary books are checked in detail, along with all ledger posting. Most businesses use “special ticks” to perform routine checking so that the figures once checked are not erased or altered.
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.
What does Routine checking entail?
The area 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
Normally, routine checking is performed on the following books:
- Cash book
- Petty cash book
- Purchase book
- Sales book
- Purchase return book
- Sales return book
- Bills receivable book
- Bills payable book
- Journal proper
- Sales ledger
- Purchase ledger
- Private ledger
- Wages and salaries book
- Stock sheet
Advantages and disadvantages of Routine checking in auditing
Routine checking offers several advantages in auditing, the most important of which are as follows:
- The posting of all entries from the “books of original entry” to ledger accounts is checked.
- As it is a routine exercise, you don’t need to hire specific or special staff to perform routine checking. Anyone with a sound knowledge of accounts can perform it. No expert skills are needed.
- It is a simple and easy job that can be done by any lower staff or audit clerk.
- Arithmetical errors and frauds of an ordinary nature can be easily detected through this system of checking.
- It facilitates the tallying of trial balance.
- It helps to verify the casting, posting, and balancing of all subsidiary books, the Journal, and ledger accounts.
Despite the above advantages, there are some challenges too when using routine checking in auditing. These are:
- It is a mechanical process that gets monotonous over time. Hence, the staff performing it are often demotivated and lose interest in doing their jobs.
- One can only detect small and minor errors with this system of checking. Planned frauds cannot be revealed with mere cross-checking of debit and credit sides.
- Routine checking shall not serve any purpose where a self-balancing system is applied and all ledgers are self-balanced.
- It fails to detect errors of principle and compensating errors. This is so because, in such types of errors, there is never a mismatch between the debit and credit sides. Only the categorization of accounts is incorrect or an error of a specified amount gets offset by another error of the same amount.
- This is a time-consuming activity and involves a considerable amount of cost too.
Is it feasible?
It must be remembered that routine checking is most feasible when the organization is small and doesn’t have too many transactions taking place daily. Because when the volume of transactions is large, it becomes physically impossible to verify each and every entry. Moreover, when the internal control system of a company is strong, the auditor may not find it necessary to do detailed checking. Instead, he may resort to “test checking”. Under test checking, an auditor chooses a limited number of transactions from the client’s accounting database and performs intensive checks on them as against a detailed checking of all the transactions.
In other words, the work of the external auditor becomes much easier if the internal control system is effective. He no longer has to review the transactions in detail and on a routine basis because the internal control system does it for him. But if the internal control system is not effective, the auditor must decide how much comprehensive verification he has to do to be satisfied that the business records are authentic.
How is it different from vouching?
Vouching and routine checking is not the same thing. While routine checking checks the arithmetical accuracy of transactions, vouching is concerned with the checking of records with the help of supporting documents. These supporting documents or vouchers constitute bills, invoices, purchase or sale receipts, goods inward/outward register, minute book, and similar evidence that form the foundation of recording transactions in a business.
The objective of vouching is to examine the accounting transactions recorded in the books of accounts by using documentary proof known as vouchers. It helps to ensure that no fraudulent transactions are documented in the books of accounts. On the other hand, the main objective of routine checking is to ensure arithmetical accuracy of entries made in the books of original entry as well as Ledger.
The most elementary aspect of auditing is routine checking. It is the arithmetical accuracy of books of account, accounting statements, and other associated accounts that are checked under this process. Even though it is a form of detailed checking, auditors normally do not have all the time to verify each and every transaction. Therefore, they use their judgment and knowledge to decide the level of checking to be done.
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