Auditing - Methods of Audit

There is no hard and fast rule or method that can be laid down for auditing. It all depends on the training and experience of the Auditor and also depends on the circumstances. The following points need to be considered by an Auditor.

Special Ticks

An Auditor should use special ticks for different classes of transactions like posting, casting, carry forward, bank statement and vouching.

An Auditor makes use of the following precautions for ticking −

  • Different ticks should be used for the same class of transactions in different firms.

  • The staff of the client should not be aware of the meaning of these ticks.

  • Same color should not be used for different period.

  • Work should be completed up to a certain level to avoid mistakes.

  • The Auditor should note down all the important totals, balances and other important points in his note book.

  • If the Auditor is asked to do balancing of accounts especially in small concerns, he should act like an Accountant instead of an Auditor.

  • Auditor should not accept any figures written with pencils.

  • In case of continuous audit, work should be completed up to a certain date.

Routine Checking

When common records and books are checked by an Auditor, it is called routine checking and it involves checking of casts, sub casts, carry forward of balances, other calculation, posting in ledgers, balancing of ledgers and transfer of ledger balances to the trial balance.

It is helpful for the Auditor to find out clerical mistakes and simple frauds only. An Auditor should go beyond routine checking to find out all the material mistakes and frauds.

Test Checking

It is not possible for an Auditor to examine and physically verify all the business transactions of a big concern where the numbers of transactions are numerous. In such type of situations, if sufficient system of internal control and Internal Check exists, the Auditor can opt for test checking instead of checking all transactions. Test checking is an accepted tool to substitute detailed checking. Test checking is based on the theory of probability. The following points need to be considered while test checking −

  • The representative number of entries of each class should be selected by Auditor.

  • Staff of client should not know and understand the method of test checking adopted by Auditor.

  • Method of test checking should not be applied in audit of next year.

  • Most of the period and section of transactions should be covered under over the years.

  • There should be no pre-determined sample in form of size should be chosen.

  • Auditor should apply the materiality concept while choosing samples.

  • Auditor should pay more attention where chances of errors and frauds are high.

  • If reliability of evidence is low, the Auditor should increase the size of sample.

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