system based audit

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Anmol Singla

Anmol Singla (Querist)
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16 September 2016 system based audit meaning and its relevance in test checking

Anmol Singla

Anmol Singla (Querist)
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17 September 2016 reply krdo plZ

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Sure! Here’s a straightforward explanation:

### What is **System Based Audit**?

A **System Based Audit** focuses on evaluating the effectiveness and reliability of an organization’s **internal control systems** and **IT systems** rather than just checking individual transactions.

* Instead of verifying every transaction manually, the auditor checks **how well the systems/processes control risks and ensure accurate data processing**.
* It involves understanding and testing the controls embedded in accounting systems, ERP software, IT applications, etc.

### Relevance in **Test Checking**

* **Test Checking** means verifying only a sample of transactions or records instead of the entire population.
* When a strong and reliable system is in place, **auditors can rely on system controls** and reduce the extent of manual checking.
* This saves time and effort while maintaining audit quality.
* If the system controls are effective, **test checks can be more focused and limited** because the risk of error is low.
* If systems are weak, auditors may have to increase test checks or do more detailed substantive testing.

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### Summary:

* **System Based Audit = Audit of the systems and controls, not just transactions.**
* It helps auditors decide the **nature and extent of test checking**.
* Strong system controls mean less extensive test checking.

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