Detection of Errors by the Auditor

Detecting errors is largely a matter of systematic checking, because errors are unintentional and are rarely hidden on purpose. An auditor typically uses the following techniques.

1. Checking casting and balancing. Re-totalling ("casting") subsidiary books and ledger accounts, and re-checking that balances have been correctly carried forward, catches most arithmetical mistakes — over-casts, under-casts, and wrong balance carry-forwards.

2. Verifying postings. Tracing every entry from the books of original entry (Journal, Cash Book, Purchases Book, Sales Book, etc.) through to its correct ledger account, on the correct side, for the correct amount, catches wrong postings and postings to the wrong personal account.

3. Confirming the agreement of the Trial Balance. A useful first filter, but — as the previous section showed — it can never be relied on alone, since complete omissions, errors of principle, and compensating errors slip straight past it.

4. Comparing against external evidence. Because complete omission and error of principle leave no internal trace, the auditor must go outside the books — comparing recorded transactions against invoices, contracts, correspondence, bank statements, and physical stock records — to confirm that every genuine transaction has, in fact, been recorded, and recorded on sound accounting principles.

5. Reconciliations. Reconciling the Bank Column of the Cash Book against the Bank Statement, and reconciling control accounts (the Debtors and Creditors Ledger totals) against their supporting schedules of individual balances, is one of the most powerful ways to surface both partial omissions and wrong postings.

6. Analytical/comparative review. Comparing the current year's figures, ratios, and trends against the previous year's (and against budgeted figures, where available) often flags an error of principle or omission that would otherwise pass unnoticed — a sudden, unexplained jump or dip in an expense head is a natural prompt to investigate further. …