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Interim and Continuous Audit

Definition of Interim Audit

Interim 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.Tandon It 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 Audit

To 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. Detail Examination. End of the financial year. Large transaction. Short time. No Satisfactory system. Identification of errors and frauds Save time Publication To know present condition To take correct decision

Businesses where Continuous Audit is Applicable

Advantages of interim Audit


1. 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 audit

Involves 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 audit A process that examines accounting practices continuously throughout the year.

The auditor may visit his or her clients at regular or irregular intervals and checks each and every transactions. Continuous audit is suitable for big or large concerns of a business which takes long time and careful consideration. Continuous audit should be conducted by independent auditor.

Advantages of Continuous Audit

1.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 one year, 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 be very 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 cheek the 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 enable his 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 the dividend. 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 and cause 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.

Comparison: If one visits checking is not possible, he should make a note of the totals up to a particular 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 any work. 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. The intimacy 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 hand wherein 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 audit

Points of distinction definition objective Interim Audit Interim audit is an audit which is conducted between two annual audits. To conduct an interim checking of profit or loss to declare interim dividend. Not compulsory by law It is applicable for both large and small scale organization. Verification of assets and liabilities are done when interim audit is conducted Less costly Mandatory Interim audit period is up to a specific date the report is presented when interim audit is done Less reliable Continuous Audit Continuous audit is conducted in a regular basis through out the year. Continuous audit shows the true and fair view of the financial statement compulsory by law It is conducted for large scale organization only. Asset and liabilities are verified after preparing balance sheet. More Costly Not Mandatory Continuous audit is conducted throughout the year The report of continuous audit is submitted at the end of the accounting period more reliable

Legal position Scale of business Verification

cost Preparing trial balance Period of audit reporting reliability