Very often we come across this term when an audit is conducted on the basis of a part checking. This, it is said, owes its origin to the statistical theory of sampling. The auditor according to his best judgment, having regard to the nature, size and materiality of
transactions, picks up the entries for examination. Normally, entries involving large amounts or relating to material accounts are seen exhaustively and entries are picked up for verification at random from the remainder according to a certain plan. Sometimes, entries are checked for a few specified months exhaustively and the rest go unchecked. Though it is stated that the technique is an adaptation of the
sampling theory, it is in reality far from it. It lacks any acceptable basis and gives the auditor no idea about the degree of reliability that he can place on the findings for application to the whole set of entries. The so-called random picking is not random in the statistical sense. To be truly random, the selection should be free from any bias and that is possible only through a statistical process and by reference to
the random number tables. The only quality that this technique can claim lies in its keenness to cover larger amounts and material
accounts. Even if errors, frauds etc., remain undetected in the part not checked, they are not likely to be too big as to upset the truth and fairness of the financial statement. But auditors cannot be certain about this even after checking 100% of transactions. The cost and time involved in conducting an audit has to be visualised in relation to benefits which shall accrue from such an approach. If fairly lesser amount of checking may lead to admit same conditions there is absolutely no point in checking entire transaction. Moreover, there are constraints within audit has to be completed. In any audit, the question of fact is more important because essentially the auditor’s job is to test the assertions in financial statements by reference to available evidence, apart from the following aspects:
- presentation,
- disclosure,
- arithmetical accuracy,
- adherence to accepted accounting principles, and
- compliance with the requirements of law.
An auditor is also concerned about the existence of errors and frauds in the financial accounts. The few matters listed above are fundamental questions affecting the true and fair concept and due consideration to these are given at the appropriate stage of audit. However, errors and frauds stand on a slightly different footing inasmuch as there is a need to eliminate them if they exist to affect
truthfulness and fairness materially. It is therefore necessary that an auditor should have a fair idea about why error and frauds occur, how they are committed and what are the usual means to locate them.
