Q. Define Final Audit/ Balance Sheet Audit/ Periodical Audit/Completed Audit.

Discuss advantages and disadvantages of Final Audit.

At the end of the year books of accounts are closed and financial statements (Trading and
Profit & Loss account, Balance Sheet and Cash Flow) are drawn up. These financial
statements are subject to examination by the auditors. So the audit which is started after the
close of the accounting year and is carried on till its completion is called final audit. Under
final audit the auditor visits his client only after the close of the financial year and goes on
checking the books of accounts until the examination for the whole period is completed.

Definitions of some prominent authors are given below:

1. Sir Ronald Irish

A periodical audit is one carried out after the close of the financial year. It is a
standard audit of the transactions for the full financial year, performed entirely after
the year’s accounts have been closed off.

2. Walter W. Bigg
A financial audit is an audit which is not commenced until after the end of financial
period, and is then carried on until completed.

Characteristics of Final Audit:

(i) Audit is started after the end of the accounting year.

(ii) Audit activity is completed in one continuous session.
(iii) Auditor visits his client only once a year.

Application of Final Audit

(i) Useful for small scale business.

(ii) Useful where system of internal control is effective.

Advantages of Final Audit:

1- Economical
Time devoted on examination of books of accounts is much less in final audit as
compared to continuous audit. In order to cover the whole year’s transactions auditor
applies test check technique. Fee is charged based on the time spent on audit.
Therefore final audit is cost effective as compared to continuous audit.

2- Convenience for Accounting Staff

The books of accounts are no more in use of the accounting staff after the close of the
financial year. The books are delivered to the auditors for their examination.
Therefore, there is no inconvenience to the accounting staff or any interruption to their
work.

3- Easy to meet auditor’s requirements

Normally auditor demands reconciliations of all the balance sheet accounts, schedules
of debtors and creditors, movement in assets, classification of inventory into fast
 moving, slow moving and non moving etc. The client’s staff has ample time to
complete the information after the close of the year. Therefore, the needed
information could be provided comfortably and timely.

4- Chances of Post audit alteration

Auditor is in possession of all the books of accounts and financial statements during
final audit. These records are not accessible to the accounting staff during the audit is
in progress. Therefore, there is no chance of altering the figures as the auditor
completes the examination in a continuous session.

5- Less chance of staff intimacy

Unlike continuous audit frequent visits of the auditor are not under final audit. Since
there is not much interaction between the audit staff and accounting staff, therefore
chances of growing their friendship are not imminent. There is no danger of
developing sympathies between audit and accounting staff to provide undue shield to
the latter by the former.

6- Moral Check
Accounting staff is fully aware that their work is subject to audit at the end of the
year. So the accounting staff is under psychological pressure in committing any error,
fraud or irregularity. As a result they are more careful and vigilant in the performance
of their duties.

7- Smooth Conduct
The auditor is in possession of complete accounting records under final audit. He is
free to carry on his work without any break or interruption till the audit is completed.
As the whole activity is performed in a continuous session, thread of work is not
likely to be lost.

8- Timely Completion
Auditor is aware about the time constraint under final audit. He also know
management anxiety to print, publish and circulate the audited accounts for the annual
meeting. Considering the above he can plan his audit activity in a way that the
examination of the books of accounts could be accomplished well in time.

9- Less time consuming

Due to time limitation detail checking is not possible under final audit. Therefore,
more reliance is placed on test check. It reduces the volume of work and the auditor is
able to complete the audit in shortest possible time.

10- Improves Accounting System

Final audit is suitable only where internal control is strong. Auditor is more conscious
about the effectiveness of internal control measures. If he observes any weakness in
the control system he suggests suitable measures for improvement.

11- Protection to Shareholders

Directors being the custodian of shareholders’ funds may maneuver the accounting
records to their own interest. The auditor comes to the rescue of the shareholders’
from the exploitation by the directors through examining the financial statements.
 12- Assists investment decisions
Audited accounts are more reliable to all the stakeholders. By reviewing the
information from the audited accounts the prospective investors are induced for
investment.

13- Suitable to Seasonal Industries

Final audit is more suitable to seasonal industries such as sugar industry. There is no
significant activity during the off-season; hence final audit is more appropriate here.

14- Meeting Legal Requirements

Final audit is legally required to be conducted by the joint stock companies. By
having done final audit the companies’ comply the provisions of the companies’
ordinance 1984.

15- Audit Evidence

In order to assess that the client has not overstated its assets or understated its
liabilities, the auditor can examine the subsequent receipts and payments respectively.

Disadvantages of Final Audit:

1- No thorough checking
The auditor has to complete the audit as early as possible to that general meeting of
the shareholders can be called and dividend can be declared. Due to shortage of time
detail checking is not possible and test checking is employed by the auditors.

2- Errors and Frauds may remain undetected

As a result of applying test checking there is likely hood that errors and fraud may
remain uncovered among unchecked transactions.

3- Delay in detection of errors and their rectification

Under this audit books of accounts are examined after the close of the financial year.
The errors committed during the year can only be detected at the year end as a result
of auditor’s examination. Such delay in discovery of errors may cause the accounting
staff to remain careless and negligent.

4- Difficulty in answering queries

Queries raised at the year end relating to transactions occurred during the year may
not be conveniently answered by the accounting staff. As a lot of time has elapsed
after the errors had taken place, therefore details concerning the errors might have
escaped from the memory of the accounting staff.

5- Less Moral Check

Psychological pressure on accounting staff is much less in final audit as compared to
continuous audit. Therefore, client staff may have backlog and may not be vigilant
and careful in keeping his work accurate and up to date.

6- Planned Frauds
Under final the auditor generally relies on test check, therefore chances that a well
planned fraud may successfully go undetected.
 7- Interim Accounts can’t be prepared
Interim accounts are essential to declare interim dividend. In case of final audit
interim financial statements could not be produced to the management.

8- Not suitable for big organizations

Final audit is not suitable where internal control system is weak and volume of
transactions is very large. Since in large organizations the magnitude of transactions is
very huge therefore, it is not possible to complete audit within stipulated time.

9- Delay in Auditor’s Report

Completion of final audit comparatively takes more time as the transactions for the
whole year are to be examined. As a result of which the auditor’s report may be
delayed. The situation becomes more miserable if some errors or irregularities are
detected and consequently inquiries are conducted before making amendments in the
books of accounts.

Conclusion:
It is concluded that final audit is suitable for small organizations or for those organizations
where internal control system is effective. For large organizations continuous audit is more
suitable.