Difference between Continuous, Final and Interim Audit

Difference between Continuous, Final and Interim Audit
Question. : Define and differentiate between Continuous, Final and Interim Audit.




Answer: Continuous
Audit: It is desired that the auditor should examine the
accounts more frequently, the shareholders may appoint the auditor to conduct
continuous audit, and where the auditor examines the accounting records at
frequent intervals throughout the accounting year, such audit is called as
continuous audit.
According to Sir Ronald Irish, “The continuous audit is one in which the auditor
attend at appropriate intervals during the year, usually monthly or quarterly,
and so examines the transactions progressively.”

FINAL AUDIT: Where the auditor examines the accounts of the whole accounting
year in one continuous session such audit is termed as final audit. Final audit
is generally started after the end of accounting year, however, in order to
complete the audit soon after the year end, a final audit may be started before
the end of accounting year.
According to Walter W. Bigg, “A final audit is an audit which is not commenced
before the end of financial period, and is then carried on until completed.”
INTERIM AUDIT: The purpose of interim audit is to know authenticated interim
results of business operations and the financial positions up to a particular
date. In case of joint stock company, such need mya arise when the directors want
to declare interim dividend. A partnership may need an interim audit at the time
of admission or retirement of a partner.
According to L. R. Howard, “When an audit is conducted up to a particular
date within the accounting period, it is called an interim audit.”
Following is the
difference between Continuous, Final and Interim Audit:







Difference
Continuous Audit
Final
Audit
Interim
audit
1. Cost of Audit
Continuous audit is costly as the
auditors spend greater time and make detailed checking of book of accounts so
auditor charges their fees accordingly.
Final Audit is least expensive
in terms of cost as the auditor makes test checking and whole work is
performed once only.
The interim audit is costly
than a final audit but economical than the continuous audit due to the proportion
of auditors time spent.
2. Suitability
Continuous audit is suitable for
·        
Large scale business
·        
Multi-National Companies
·        
Companies having long
volume of transactions
Final audit is suitable for
·        
Small scale business
·        
Medium scale business
·        
Large scale business
Interim audit is suitable for
·        
Medium scale business
·        
Large scale business
3.  Sampling
In continuous audit sampling
is not used by the auditors. They examine the whole population and majority
of transaction.
Auditors make full use of sampling
techniques to reduce their workload and to reach sound conclusions without examining
each and every transaction.
The auditors are usually able
to select large sampling size and they can examine the items on a recurring
base.
4. Time of Conduct
Continuous audit is usually conducted on yearly
basis and auditors attend office regularly.
Final audit is started at the end of financial
period or when the books of accounts have been closed.
Financial year is divided into two or three interim financial
periods and work of audit is started soon after the end of interim period.
5. Objective
The objective of continuous
audit id easy and early rectification of errors and frauds.
The objective of final audit
is to determine and show the true and fair view of financial statement.
Interim audit examines the
books of accounts and other record up to a particular period.
6. Internal Control System
In a continuous audit, the internal control system
of entity is analyzed in great detail and useful recommendations are made for
its improvements.
In case of final audit, there must be an effective
internal control system in an organization.
In case of interim audit, there must be an effective
system of internal control in an organization but not as essential as in case
of final audit.
7. Check on Accounting
Staff
On account frequent and surprise
visits of the auditor, continuous audit imposes greatest amount of
psychological pressure on the accounting staff.
Final audit exerts least
amount of psychological pressure on accounting staff as the auditor examines
books of accounts only after the end of accounting year.
Auditor examines the books of
accounts either once or twice during the accounting year or also after the end
of accounting year therefore, value of interim audit as a check on accounting
staff is less than continuous audit nut it is more than final audit.
8. Seasonal Industries
Continuous audit is not a useful type of audit for seasonal
industries.
It is most suitable type of audit for seasonal
industries.
It may not be a suitable type of audit for seasonal industries.
9. Alteration in Figures
Accounting staff knows that
the entries that have been checked by the auditor will not be checked again
during his next visit. Therefore, a dishonest clerk may alter figures in the
books of accounts that have already been checked by the auditor at his
previous visit, and the frauds may be perpetrated.
As the audit is completed in
one continuous session, and once the records are delivered to the auditor
they are not accessible by the accounting staff, therefore, there is no
chance of such manipulation and alteration in figures.
 The entries checked during interim audit
hare not rechecked at the time of final audit, and after interim audit accounting
records kept under the custody of accounting staff, therefore, there are chances
that the Accounting staff may make alteration in the records.
10. Reporting
As the work is c complete after the accounting works
so the auditor is liable to issue his report soon after the end of accounting
period.
It usually takes long time for the auditor to
complete the audit, resolve his queries and issue the report.
The report is issued relatively earlier than the
final audit.
11. Extent of Checking
A continuous audit, audit work
continues throughout the year, therefore, the auditor has ample time and he
can make detailed checking of the transactions.
The extent of checking is
moderate and depends on eth auditor’s’ assessment of risk, materiality and sampling
considerations.
The extent of check is lower
than continuous audit and more than a final audit.
12. Regular
It is a regular feature of business as it is
conducted every year.
It is a regular feature of business as it is
conducted every year.
It is a not a regular feature of business as it is
conducted occasionally.
13. Detection and
Prevention of Errors
Continuous audit is more
effective in detection and prevention of errors. As the errors are corrected
as they are detected.
Chances of detection of errors
and frauds are lesser in final audit due to smaller sample size.
In interim audit, errors and frauds
can be detected and prevented more effectively as compared to final audit.
14. Third Party’s Interest
Third parties have some interest in continuous audit
as it serves their purpose.
Third parties have some interest in final audit as
it serves their purpose.
Third parties have no interest in interim audit as
it does not serve their purpose.

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