Continuous and Final Audit
Continuous Auditing is processes that allow an on-going review and analysis of business and financial information on a real time basis. Continuous auditing requires specialized skills of audit personnel. Continuous auditing helps end users with timely and correct information for reporting and decision making. Therefore, continuous audit is more useful where financial information is updated for decision making and publishing as events occur. Therefore, main users of continuous audit are different levels of management. The continuous audit is sometimes confused with the interim audit and used interchangeably. The interim audit concerns with a particular period in a financial year whereas continuous audit is not concerned with a particular period and is an ongoing process.
At the other hand final audit is commonly understood to be an audit which begins after the books of accounts have been closed at the end of the accounting period and thereafter carried out continuously until completed. Normally final audit is concerned with verification of books of accounts and the financial statements generated on the basis of those books of accounts. The final auditor is required to give opinion on the financial statements and books of accounts maintained. The main users of final audit are shareholders/owner of the enterprise, government and other third-party users.
Advantages of final audit are:
i. Work can be carried on at stretch till the audit is over. Thus, avoiding the necessity of frequent visits
ii. The possibility of manipulation in financial information is also avoided. Allocation of work for staff and planning of audit becomes easier.
Disadvantages of final audit include is mainly delay in completion of audit and publication of financial audit. Particularly if the size of the business is large. It also becomes difficult to plan and complete audit in time if financial years of several client send on the same date. Another disadvantage is that the errors, non-compliance, manipulations and frauds are not discovered in time, thus making difficult to make corrective measures.
Advantages of Continuous Audit:
1. Errors are discovered earlier, thus giving adequate time for taking corrective measures
2. Because of the frequent attendance of the auditor, the opportunities of committing frauds are reduced.
3. Fraud, if perpetrated, is detected sooner with the result that size of the fraud is limited and also the chances of recovering the defalcated amount are improved.
4. The attendance of the audit staff acts as a moral check on the client‟s staff.
5. The client‟s accounts are always kept up to date.
6. Since audit can be carried on throughout the year, there is more time for detailed checking of the accounts when the audit is taken up at the close of the year.
7. If the audit of routine transactions is completed before the close of the year, the final accounts can be prepared and reported upon much earlier.
8. If the auditor carries on a continuous audit, he remains constantly in touch with the client‟s affairs thereby able to carry out his duties efficiently.
9. In the case of continuous audit, the work of the auditor is greatly facilitated since he is in a better position to plan out his engagements and take up the job at his convenience, avoiding the pressure at the close of the financial year when most of the business firms usually close their accounts.
Disadvantages:
1. There is a danger that the records of transactions after they have been audited may be altered either intentionally or unintentionally.
2. The examination of an item left incomplete on a visit for being undertaking on the next visit may be overlooked.
3. A continuous audit may involve good deal of waste of time and effort if the size of the concern is small.
The disadvantages of a continuous audit can be avoided if the following precautions are taken:
1. During the course of each visit, work should be completed up to a definite stage so as to avoid loose ends.
2. At the end visit, important balances should be noted down and the same should be compared at the time of the next visit.
3. The visits should be at irregular intervals of time so that the client‟s staff may not in advance know the exact date when the audit would be resumed and thus may be able to prepare themselves in advance for the same.
4. The nominal accounts should be checked only at the time of final closing.
5. The client‟s staff should be instructed not to alter or correct audited figures. The auditor should also device a special form of ticks for being placed against figures, which has been altered, and neither its purpose nor significance should be disclosed to the client‟s staff.
Thus, it is clear from the above that final or completed audit approach is advisable in small scale clients. On the other hand, continuous audit may be adopted in large scale clients. The continuous audit may also be suitable to the clients where internal control is weak. The continuous audit involves higher cost in comparison to final audit. Moreover, continuous presence of audit staff may impair auditor‟s independence as well. Therefore, both choices should be judged as per their merits and demerits vis-à-vis clients‟ requirement and scale of operation.