Corporate Accounting and Auditing · Audit Sampling, Audit Techniques and Analytical Procedure

Audit Techniques and Selective Testing (Test Checking) for CMA Inter

Updated 10 October 2026 · Fact-checked

Audit techniques are the procedures an auditor performs to gather audit evidence: inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. Selective testing (test checking) examines a sample of items instead of every item. You answer by naming the technique, explaining how it works, and linking it to the assertion it supports.

Understand Audit Techniques and Selective Testing

An auditor cannot give an opinion without evidence. Audit procedures are the actions the auditor takes to collect that evidence. SA 500 on Audit Evidence lists the main ones, and ICMAI questions ask you to name, explain and match them to a situation.

The main techniques are these:
- Inspection: examining records or documents, or physically examining an asset. Checking a sale invoice or counting a machine are both inspection.
- Observation: watching a process or procedure being done by others, such as staff counting stock at year end. It shows the process only at that moment.
- External confirmation: getting a direct written reply from a third party, such as a bank balance confirmation or a debtor confirmation.
- Recalculation: checking the arithmetic accuracy of documents or records, such as depreciation or invoice totals.
- Reperformance: the auditor independently carries out a procedure or control that the entity performed, such as redoing a bank reconciliation.
- Analytical procedures: studying ratios and trends and investigating unusual movements.
- Inquiry: asking knowledgeable people inside or outside the entity. Answers alone are weak evidence, so you corroborate them with other procedures.

Now the second idea. Complete checking means examining every transaction. It is costly and slow. Test checking (selective testing) means examining only some items and drawing a conclusion about the whole population. It is used when the population is large and internal control is good. If the control is weak, the auditor tests more items or checks completely.

Test checking is acceptable because audit gives reasonable assurance, not absolute assurance. The auditor stays responsible for the opinion, so the sample must be chosen with care and be representative.

Key rules to remember

Techniques to remember: Inspection, Observation, External confirmation, Recalculation, Reperformance, Analytical procedures, Inquiry; These are the procedures SA 500 describes for obtaining evidence. Write them in this order to avoid missing any.
Strength of evidence: External and auditor-generated evidence > internal evidence; documents > oral statements; Evidence from independent sources and obtained directly by the auditor is more reliable. Use this to explain why inquiry alone is not enough.
Choice of testing approach: Strong internal control → smaller test checks; weak internal control → larger tests or complete checking; Complete checking is also used for small populations or high-risk items.

How to solve Audit Techniques and Selective Testing questions

Use this method for any question on audit techniques or selective testing.

1Read the question and decide if it asks you to define, list, match a technique to a situation, or compare test checking with complete checking.
2Name the technique exactly, using the SA 500 terms.
3Explain in one or two lines what the auditor actually does.
4Link it to the assertion or balance it supports, such as existence of stock or accuracy of depreciation.
5Comment on reliability: say whether the evidence is internal or external, and whether it needs corroboration.
6For test checking, state the condition for use, the advantages and the limitations, and say that the auditor remains responsible.
7Close with a one-line conclusion that fits the scenario in the question.

Quickest way: Match the verb to the technique

When to use it: Use this for MCQs and short match-the-following questions.

Look at the key verb: examines documents or assets means inspection.
Watches a process being done means observation.
Writes to a third party for a direct reply means external confirmation.
Checks arithmetic means recalculation.
Independently redoes the entity's procedure means reperformance.
Asks people means inquiry, which is the weakest evidence on its own.
For sampling, look at the population size and control strength to choose between test checking and complete checking.

Common mistakes in Audit Techniques and Selective Testing

Confusing recalculation with reperformance.
Both involve the auditor redoing something.
Fix: Recalculation checks arithmetic accuracy. Reperformance redoes a procedure or control, such as a reconciliation or an approval check.
Treating observation as proof of year-round operation.
Students forget that observation shows the process only at that moment.
Fix: State the limitation and say the auditor supports it with other procedures.
Relying on inquiry alone as sufficient evidence.
Inquiry is easy and appears in many answers.
Fix: Say that inquiry must be corroborated by inspection, confirmation or other procedures.
Saying test checking shifts responsibility away from the auditor.
Students think a sample reduces the auditor's duty.
Fix: The auditor remains fully responsible for the opinion. A poorly chosen sample can lead to an incorrect conclusion.
Recommending test checking regardless of control strength.
Students memorise its advantages and ignore conditions.
Fix: Tie the decision to internal control and risk. With weak control or high risk, extend the tests or check completely.
Mixing inspection of assets with inspection of records in the answer.
One word covers two activities.
Fix: Mention both: inspection of records or documents, and inspection of tangible assets.

Worked examples

Example 1

The statutory auditor of Kaveri Textiles Ltd wants evidence on year-end trade receivables. Name three audit procedures she can use and explain each.

Show the solution

Receivables raise questions of existence and valuation, so choose procedures that give strong evidence.
External confirmation: send a request to selected debtors for direct written confirmation of balances. This evidence comes from an independent third party, so it is reliable.
Inspection: examine sales invoices, dispatch records and subsequent receipts from debtors to confirm that the sales happened and the amounts are right.
Recalculation: recompute the total of the debtors ledger and the ageing schedule to check arithmetic accuracy.
Add that inquiry of management about doubtful debts needs corroboration with the other evidence.

Answer: The auditor can use external confirmation (direct replies from debtors), inspection (invoices, dispatch records and later receipts) and recalculation (totals and ageing). Together they support existence, accuracy and valuation of receivables.

Example 2

Distinguish test checking from complete checking. State when an auditor may rely on test checking.

Show the solution

Define complete checking: the auditor examines every item or transaction in the population.
Define test checking: the auditor examines a selected sample and draws a conclusion about the whole population.
Compare on cost and time: complete checking is costly and slow, while test checking saves both.
Compare on risk: complete checking leaves almost no sampling risk, while test checking carries sampling risk if the sample is not representative.
State when test checking is acceptable: the population is large, internal control is effective, and items are similar in nature.
State when it is not suitable: weak internal control, small population, or high-risk or material items, where more testing or complete checking is needed.
Add that the auditor stays responsible for the opinion in both cases.

Answer: Complete checking examines all items; test checking examines a sample. The auditor may rely on test checking when the population is large and similar and internal control is effective. If control is weak or the items are material or high-risk, the auditor extends the tests or checks completely, and remains responsible for the opinion.

Exam tips

Learn the SA 500 list of techniques in a fixed order so a 'list and explain' question never loses marks.
In scenario questions, always add why the evidence is reliable or weak. This earns the step marks.
For MCQs, spot the verb in the option: examines, watches, asks, recomputes, redoes.
When writing on test checking, give conditions, advantages and limitations in separate lines.
Where possible, link each technique to an assertion such as existence, completeness, accuracy or valuation.

Practice questions from Audit Sampling, Audit Techniques and Analytical Procedure

Audit Techniques and Selective Testing: frequently asked questions

What are the main audit techniques for obtaining evidence?

The main ones are inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. SA 500 describes them as ways of obtaining audit evidence. You should be able to explain each with a simple example.

What is the difference between recalculation and reperformance?

Recalculation checks the arithmetic accuracy of documents or records. Reperformance means the auditor independently carries out a procedure or control that the entity did, such as a bank reconciliation. Reperformance covers more than arithmetic.

Is test checking allowed in an audit?

Yes, because an audit gives reasonable assurance, not absolute assurance. It works best when the population is large and internal control is effective. The auditor stays responsible for the opinion and must choose a representative sample.

Why is inquiry considered weak evidence?

Answers from people inside the entity may be biased or incomplete. So inquiry is normally corroborated with other procedures such as inspection or confirmation. It is useful mainly to understand the business and to direct further work.