Final or Completed or Periodical Audit : A final or completed audit is commonly understood to be an audit which does not begin until the books have closed at the end of the accounting period and thereafter is carried on continuously until completed. Whether an audit ought to be conduct continuously after the close of the financial year should be decided on a consideration of the size of the business and the extent of detailed checking required.
Advantages of such an audit are :
- Work can be carried on till the audit is over, thus, avoiding the necessity of having to return on separate occasions to complete the work.
- The possibility of figures being altered after work has been done is also avoided.
- Allocation of work for staff also becomes easier.
Disadvantages of final or completed audit include may be mainly on account of delay which may occur after the end of the financial period particularly if size of the business is large; accounting periods of several clients may end on the same date, and thus difficulties may be experienced in allocating audit staff.
Continuous audit : A continuous audit is one in which the auditor’s staff is engaged continuously in checking the accounts of the client the whole year round or when for this purpose the staff attends at intervals, fixed or otherwise, during the currency of the financial period. Strictly speaking, when auditor’s staff attends the audit work at fixed intervals it may be strictly called interim audit. This is when an audit is conducted up to a particular date within the accounting period. The auditor may attend to audit the figures for a month or for a quarter, as the work may require. It would differ distinctly from the final audit in the extent of the work carried out; verification of assets, for example would be left until the final audit. In case of continuous audit, the work is conducted throughout the course of the financial year but is not taken to a specific accounting period, as is an interim audit. It might be that during the course of the continuous work interim figures are being audited, but the significant factor here is that the auditor will
be engaged continuously on the audit throughout the financial period. Staff may be in residence throughout the period or may come and go at irregular intervals, but most of the time, the audit staff is present at the location. Thus, in case of continuous audit, the audit staff is present as the client’s premises almost during the entire accounting period.
- Errors are discovered earlier with the result that there is adequate time for making the necessary rectification.
- Because of the frequent attendance of the auditor, the opportunities of committing frauds are reduced.
- Fraud, if perpetrated, is detected sooner with the result that size of the fraud is limited and also the chances of recovering the amount lost are improved.
- The attendance of the audit staff acts a moral check on the client’s staff.
- The client’s accounts are always kept up-to-date.
- 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.
- 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.
- 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.
- 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.
- There is a danger that the records of transactions after they have been audited may be altered either innocently or fraudulently.
- The examination of an item left incomplete on a visit for being undertaking on the next visit may be overlooked.
- 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 :
- During the course of each visit, work should be completed upto a definite stage so as to avoid loose ends.
- At the end of each visit, important balances should be noted down and the same should be compared at the time of the next visit.
- 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.
- The nominal accounts should be checked only at the time of final closing.
- 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 have 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 case size of the entity is very small. On the other hand, continuous audit may be followed only in case size of the entity is very large and system of internal control is weak since the great disadvantage of continuous audit is that the cost would be very high and continuous presence of audit staff may impair auditor’s independence. The interim audit conducted on quarterly or half-yearly basis is the most practicable