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Interim and Continuous AuditDefinition of Interim AuditInterim
audit means the examination of financial records during the course
of a fiscal year, generally to
reduce the amount of work required for the end-of-year audit.An
audit is which conducted in between the two annual audits with a
view to find out interim (shortterm)
profits to enable the company to declare an interim dividend is
known as Interim Audit.
B.N.TandonIt is a kind of audit which is conducted between the
two periodical or balance sheet audits. It may be
quarterly or half yearly.
Purpose of Interim AuditTo ensure whether the organization is
proceeding to its planned annual goals or not.
To declare the interim dividend.To find out the interim
financial position of the organization.
To reduce the amount of work required for the end-of-year
audit.
Businesses where Interim Audit is Applicable Change in the
Structure. Taking a loan. Expansion of Enterprise. Ascertain profit
or loss.
Businesses where Continuous Audit is Applicable Detail
Examination. End of the financial year. Large transaction. Short
time. No Satisfactory system.
Advantages of interim Audit Identification of errors and frauds
Save time Publication To know present condition To take correct
decision
DISADVANTAGES OF INTERIM AUDIT1. Disturbance :- Regular
accounting work of the interim audit disturbs the office work of
the client. It is a
disadvantage of this audit.
2. Burden Of Work :- Audit staff will have also to prepare the
audit notes when they will finish the interim
audit. So the burden of work increases in this way.
3. Changing In Figures :- A dishonest official may change the
figures of accounts which is already audited
by the auditor. So there are also a chance of fraud in such type
of audit. It is a disadvantage.
4. More Expensive :- This type audit only increases the expenses
of business because it is not compulsory
by law.
5. Not Useful For Third Party :- It has no use for third party
because this audit is used only to improve the
efficiency and effectiveness of the accounting system.
Definition of continuous auditInvolves detailed examination of
the books of account at regular intervals during the financial
year.(i.e. 1 or 3 months after). At the end of the year the
auditor checks the financial statement.
Also called detailed audit or each and every item auditA process
that examines accounting practices continuously throughout the
year.
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The auditor may visit his or her clients at regular or irregular
intervals and checks each and everytransactions.
Continuous audit is suitable for big or large concerns of a
business which takes long time and carefulconsideration.
Continuous audit should be conducted by independent auditor.
Advantages of Continuous Audit1.Easy and quick Discovery of
Errors : Errors and frauds can be discovered easily and quickly as
the
auditors cheeks the accounts at regular intervals and in
details. If he was to cheek the accounts after oneyear, it would be
difficult to locate error.
2.Knowledge of Technical Details : Since the auditor remains
more in touch with the business, he is in a
position to know the technical details of it and hence can be of
great help to his clients by making valuable
suggestions.
3. Quick Presentation of Accounts: Most of the checking work
having been already performed during the
course of the year, the final audited accounts can be presented
to the shareholders soon after the close of the
financial year at the annual general meeting.
4.Keeps the clients staff Regular : As the Auditors visits the
clients at regular intervals, the clerks will bevery regular in
keeping the accounts up to date.
5.Moral Checks on the clients staff : If the auditor pays
surprise visits, it will have a considerable moral
check on the clerks preparing the accounts as they do not know
when the auditors may pay a visit to cheekthe accounts.
6.Efficient Audit : The auditor, having more time at his
disposal, can check the accounts with greater
attention and in detail and his work will be more efficient.
7. Convenient for Auditors: In this audit, the several visits
paid by the auditor to the clients office enablehis work to proceed
easily and smoothly. It also increases his confidence in his
capacity to do his work
efficiently and effectively.
8. Useful for Declaration of Dividend: The continuous audit is
also helpful for the declaration of thedividend. As the accounts
are checked throughout the year, so the audit accounts are ready
for the
declaration of dividend.
9. Sufficient Time: Continuous audit provides sufficient time to
the audit staff. The important and
ambiguous matters may require more time to draw conclusion.
There is ample time for such matters.10. Auditor Advice: In the
continuous audit the auditor can find the weakness of the business
during the
year and he can make the suggestion for the improvement of the
business.
Disadvantages of Continuous Audit:Alteration of Figure: Figures
of the books of accounts which have already been checked by the
auditor at
his previous visit, may be altered by a dishonest clerk and
fraud may thus be perpetrated.
Dislocation of Clients Work:The frequent visits by the auditor
may dislocate the work of his client andcause inconvenience to the
latter.
Expensive: It is an expensive system of audit.
Queries May Remains Outstanding: The audit clerk may lose the
thread of his work and the queries
which he wanted to make may remain outstanding as there might be
a long interval between the two visits.Dependency of the Clients
Staffs on Auditors: The staff of the client may depend upon the
audit staff to
help them out of difficulties in course of their work, e.g., to
discover an error which they could not discover
and entail upon the time of the audit staff.
Extensive Note Taking: Extensive note taking may necessary in
order to avoid any alteration in the figures
after the audit.
Precautions of Continuous Audit: No Alteration: Without the
permission of auditor, no alteration should be made. Rectifying
Entry: In case of any alteration, a rectifying entry in the journal
is needed. One Visits Checking: A book should be checked out as far
as possible to avoid loose ends.
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Comparison: If one visits checking is not possible, he should
make a note of the totals up to aparticular date in his diary or
note book and compare them at his next visit.
Systematic Programme: Well drawn-up programme is required to
avoid any kind of hazard. Audit Notes: Notes are to be written in
the Audit Note Book to know about the dissatisfactory
answers. Special Tick: He should put a special secret tick for
the figure of any kind of alteration with a
coloured pencil or rewrite the correct figure in a different
coloured ink.
Re-check: The auditor should glance over any alteration not
bearing secret tick before he begins anywork. Final Audit: The
audit of Impersonal, General or Private Ledger should be conducted
to prevent the
risk of fictitious entries.
Surprise Visits: The visits should be at irregular intervals of
time to know the actual scenario. Nominal Accounts: The nominal
accounts should be checked only at the time of final closing.
Rotation: There should be reasonable rotation of audit staff and
their duties so that they may not
lose interest in their work.
Better control and supervision: There should be better control
and supervision over the audit staff. No Pending Questions: There
should be no pending work on the part of auditor. The doubtful
entries can be cleared on the spot otherwise the audit purpose
become useless.
No Friendship: The auditor must inform his staff not to become
familiar with accounting staff. Theintimacy between audit and
accounting staff may lead to helping attitude toward employees.
Progress Table: The audit should be done according to a progress
table prepared before handwherein the items audited should be
marked as and when the audit is completed.
Continuous audit may be followed only in case size of the entity
is very large and system of internal
control is weak but still if the precautions can be taken only
then some convenient results can be expected.
Differences between interim and continuous auditPoints of
distinction
Interim Audit Continuous Audit
definition Interim audit is an audit which is
conducted between two annual audits.
Continuous audit is conducted in a regular
basis through out the year.
objective To conduct an interim checking ofprofit or loss to
declare interimdividend.
Continuous audit shows the true and fairview of the financial
statement
Legal position Not compulsory by law compulsory by law
Scale of business It is applicable for both large and
small scale organization.
It is conducted for large scale organization
only.
Verification Verification of assets and liabilities
are done when interim audit isconducted
Asset and liabilities are verified after
preparing balance sheet.
cost Less costly More Costly
Preparing trialbalance Mandatory Not Mandatory
Period of audit Interim audit period is up to a specificdate
Continuous audit is conducted throughoutthe year
reporting the report is presented when interim
audit is done
The report of continuous audit is submitted
at the end of the accounting period
reliability Less reliable more reliable
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