Continuous Audit and Interim Audit
Que 1: What is continuous audit? State its merits and demerits.
Ans: An audit conducted continuously through out the year
either regularly or with a fixed interval or different interval with or without
pre-intimation to the client is called a continuous audit.
According to Pegler, "A continuous audit is one where
the auditor's staff is occupied continuously on the accounts the whole year
round, or where the auditor attends at intervals, fixed or otherwise, during
the currency of the financial year and performs an interim audit'.
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| CONTINUOUS AUDIT |
Merits and Demerits of Continuous Audit:
Merits of Continuous Audit:
1. Detailed Checking: As the audit is being conducted
through out the year sufficient time is available for detailed and satisfactory
checking.
2. Early detection and Correction of Errors: The auditor
visits regularly and errors found are corrected there and then only.
3. Moral Check: Regular visit of auditor creates a moral
check on the employees to be regular in their duties and attending the
suggestion offered by auditors.
4. Up to Date Accounting: Regular visit of the auditor
forces the staff to maintain the accounts up to date otherwise the auditor
reports to management. The management may take action on the concerned staff.
So this sort of impression makes everybody to keep their work up to date.
5. Quick Presentation of Accounts: By the end of the year or
when ever called on the accounts or any information can placed before
shareholders soon after the close of the accounting year. In case of banks,
Insurance or any financial institutions needs to present their accounts
immediately.
6. Quick and Reliable Information: Most of the managerial
decisions are based on the information from accounts departments: if the
accounts are continuously audited, management can have access to quick and
reliable information. This automatically boost the decision making process.
7. Valuable Suggestion: By the virtue of regular visit
auditor get acquaint with all aspects of clients business and can offer
valuable suggestions sought for. This enhances the effectiveness of business in
all respects.
8. Final Audit: Final audit can be completed without any
work pressure. Continuous audit provides ready information and base for final
audit.
9. Quality of Audit Work: Continuous audit work is more qualitative
then final audit.
10. Interim Statements: In case the company intends to
declare interim dividend interim accounts and reports can be readily provided.
Demerits of Continuous Audit:
Continuous audit suffers from following drawbacks.
- Not suitable for small business units.
- It is very expensive.
- Alternation: client staff may alter the accounts already audited.
- Requires preparation of detailed notes.
- Interruption of client's staff: frequent visit of auditor may cause inconvenience in routine work.
- Collusion: frequent visit of auditor may be unduly used and the client staff and audit staff may join hands and misuse the expert talent of audit staff.
Que 2: Write a note on Interim Audit.
Ans: An audit conducted in between two annual audits is
called an interim audit. An audit conducted with an object of preparing interim
report and declaration of interim dividend. Interim audit is quite essential
for the companies required announcing their quarterly progress report to share
holder and the potential investing public.
Advantages of Interim Audit:
- It serves the purpose of declaring interim reports for assessing periodical progress. Quarterly progress reports, sends signals to potential investing public as well as to competitors
- Quick presentation of final accounts and annual reports.
- Early location of errors and frauds.
- Moral check : It creates a moral check on client's staff
- Interim dividend : Interim audit and interim audit report is the base for interim dividend
Disadvantages of Interim Audit:
- It is expensive: Small firms are not capable to bear the heavy audit expenses twice in year
- Detailed notes: It involves preparation of detailed notes for interim report.
- Alteration: It gives scope alteration of audited figures after checking.
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