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An audit staff may carry audit work for the whole year with equal or unequal intervals. The large-scale companies require constant review of their business matters. The monthly or quarterly progress can be checked through audit.
There may be a declaration of dividend during the year. In this case, accounts are checked for six months.
When there are excessive cash transactions, the management can follow the policy of continuous audit. The internal control system may be weak in some organizations.
The poor internal control helps to apply continuous audit in order to show a true and fair view of accounting record. This type of audit is essential to compile accounts in time.
At the end of the financial year, the accounting books are closed. The auditors submit their .report to the shareholders after the end of accounting year.
See Also: Advantages and Disadvantages of Final Audit
No doubt such audit is costly but its cost is less than the amounts of frauds and errors. The giant’ companies can pay audit fee to prevent errors and frauds.
There may be the clash of duties among the accounting and audit staff. But an expert auditor can solve this problem.
Moreover, an auditor can avoid erasing of figures. The accounting staff may be informed to keep away from totals.
Continuous Audit Definition
R. G. Williams says that continuous audit is one where the auditor or his staff is consistently engaged in checking the accounts during the whole period, or where the auditor or his staff, attend at regular or irregular intervals during the period.
Waiter W. Bigg says that continuous audit is one member of auditors staff is occupied continuously on the accounts the whole year round or where they attend at frequent interval, fixed or otherwise during the current of the financial year.
R. Howard says that continuous audit work is conducted through at the course of the financial year but is not taken to a specific accounts period as in interim audit.
See Also: What are the Generally Accepted Auditing Standards
Characteristics of Continuous Audit
- Audit work is completed in the same year.
- The auditor makes many visits
- Surprise visits are possible.
- The management fixes time.
- Verification is made at the end of the year.
- It is suitable for multinational companies.
Application of Continuous Audit
- A large-scale business concern
- A business that needs monthly results
- A business that prepares accounts just at the close of the year
- An organization where the internal control system is weak
Advantages and Disadvantages of Continuous Audit
Advantages of Continuous Audit
Detailed Checking
The advantage of the continuous audit is continuous checking. The audit clerks remain busy throughout the year. The work is checked on the spot. There is 100 percent checking of business transactions,
Early Location of Errors
The merit of a continuous audit is an early location of errors. The recording and checking of entry are done at the same time.
The errors are located at an early stage. In this way, a continuous audit helps to rectify the books of accounts.
Completion Of Accounts
The merit of a continuous audit is an early completion of accounts. This kind of audit induces the accounting staff to complete their work in time.
At the same time audit staff completes the audit work. The verification of assets and liabilities is possible just after the preparation of balance sheet.
Interim Dividend
The continuous audit is helpful to declare, dividend. The accounts are prepared for six months, the management can declare interim dividend to encourage the shareholders,
Moral Check
The continuous audit is useful to develop moral check on employees. The time between recording and checking the entries is very short.
They cannot think to plan any fraud. In this way, the employees are forced to work properly.
Auditors Advice
The continuous audit is beneficial to seek auditor’s advice. The weakness of business functions can be removed during the year.
The auditor can use practical experience and prudence. He can guide to remove the fault in the way of successful working.
Convenient for Auditor
The continuous audit is helpful for the audit staff for distribution of workload. The work is distributed over the whole year. The audit staff can prepare their program on the basis of time allocated to one business.
Regular Staff
The continuous audit is beneficial for business. The accounting employees become regular. The accounting record is maintained on regular basis for showing it to audit staff.
Sufficient Time
Continuous audit provides sufficient time to audit staff. The important and ambiguous matter may require more time to draw a conclusion. There is ample time for such matters.
Check on Fraud
Continuous audit checks on fraud. The accounting employees are unable to plan and execute fraud. The auditor can start work just after the completion of accounting work.
No Missing Entries
The continuous audit is useful for keeping the full record. There are no missing entries in the books of accounts. The auditor can go through and every transaction.
Early Correction of Errors
The continuous audit is helpful for early correction of errors. The auditor can point out the errors after every visit. The correction is possible on the same day.
Prompt Filing of Returns
The continuous audit is beneficial for the prompt filing of returns. The accounts are prepared as well as audited at the end of the year. The management can submit audited accounts to a registrar.
Surprise Visit
The continuous audit provides chances of a surprise visit to the audit staff the accounting staffs become alert due to surprise visit. It is essential for eliminating the chances of errors and frauds.
Up to Date Record
The continuous audit helps to keep up to date record. Such a record is needed by the management for borrowing fund, settlement of tax and dealing with a labor union.
Even Workload
The accounting staff can feel satisfaction due to even workload. The books of accounts are maintained as a routine matter. There is no overwork so there is no chance of errors in accounts.
EARLY The continuous audit is helpful for calling an early meeting of shareholders. The audited accounts are presented for distribution of profits.
Dividend Payments
The continuous audit helps to complete the accounts at the end of the year. The audited accounts are ready for the declaration of dividend. The management can recommend dividend just after the audit.
See Also: What is the Role of an Auditor in an Organization
Disadvantages of Continuous Audit
Small business
Continuous audit is not fit for small-scale business concerns. A small business has a few transactions so there is no need for audit for the whole year.
The owners of managers can know facts behind books so detailed audit are the burden.
Figures Change
The continuous audit has the drawback of change in figures. Accounting staff for misappropriation of goods and cash can alter the audited accounts. The changed figures can show different results.
Client Work
The demerit of a continuous audit is that the work of the client suffers due to a clash of duties. The client staffs remain busy for the whole year.
When the audit work is started, the work of accounting staff suffers, as the books are not spare.
Staff Intimacy
The accounting staff and the audit staff work side by side for the whole year. Friendship among the employees and auditors may lead to errors and frauds.
The sympathetic view of audit staff may fail to show true and fair view.
Missing Link
The drawback of a continuous audit is that queries made by the audit staff may not be answered on the same day.
The link is disconnected on the next day when queries are kept pending. The auditor may forget or there may not be proper reply on the part of an accountant.
Costly
The drawback of a continuous audit is that it is costly for many organizations. A few companies can pay the heavy amount of audit fee. Therefore numerous business concerns fail to reap the benefits of audit due to high cost.
Low Income
The continuous audit keeps the audit staff busy for the whole year. They are not able to start and complete many audits at the same time.
The time given to one business is much higher as compared to final audit. So it is not suitable for audit staff from a financial point of view.
See Also: Purpose of Audit Program
Precautions of Continuous Audit
No Erasing
The continuous audit requires precautions for erasing figures at a later stage. The surprise checking is essential to follow the rules of accounting so that the figures must remain the same.
No Pending Questions
There should be any pending work on the part of the auditor. The doubtful entries can be cleared on the spot otherwise the purpose of the audit will become useless.
Balancing
There is a possibility of changing totals, sub-totals, and balances. After the completion of work on a daily basis, there is a need for finalizing the totals. Ink can be used to write up the figure.
Complete Checking
The auditor should start and complete the checking of books in one session. If it is not possible he can go through the previous work. A bird’s eye view of previous audit work is helpful to trace the thread of work.
Notes Preparation
The auditor should prepare detailed notes of work done. The accounting staff can see that facts and figures have been noted which couldn’t be changed.
Tick Marks
The audit staff must take care during a continuous audit. There is a need of special tick marks to be used for an audit of accounts. These tick marks may not be disclosed to accounting staff.
No Friendships
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 the employees.
Irregular Intervals
The continuous audit must be conducted at irregular intervals. The auditor should pay surprise visits in order to give no time to the accounting staff for planning and executing fraud.
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