BCom Notes Part II Auditing Kinds of Audit, Continuous Audit Its Advantages and Disadvantages

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Continuous Audit

The audit that remains continue throughout the financial year is called continuous audit.

Characteristics of Continuous Audit

1. The auditor visits the business regularly.
2. It is conducted in the large business concern.
3. It is conducted through the year.
4. Throughout checking is possible.
5. It is an expensive audit.
6. Audit report is not prerequisite.
7. It is used to cover the deficiencies of the business.
8. Surprise visits are also possible by the auditor.
9. The manager can fix the time.

Advantages of Continuous Audit

1. Early Location of Errors and Frauds

In the Continuous Audit, the audit visit the clients after a short period. So, he is in a position to check the information completely in detail. It is helpful in checking the errors and frauds easily. If the audit is conducted after the year ended. It is not possible to find the errors or frauds easily.

2. Check on Frauds

In the Continuous Audit the errors are located earlier. So it is also helpful in the early correction of errors and frauds because it is located at the time when it can be corrected earlier.

3. Quick Rectification

Due to Continuous Audit errors are located easily and rectified at an early stage.

4. Special Attention

Before the finalization of accounts an auditor has a sufficient time to pay proper attention to the checking of account and detection of frauds and errors.

5. Guidance to Client

The auditor remains in touch with the business details, so he also indicates about the mistakes and gives valuable suggestions to the client to keep the accounts in proper manner.

6. Useful for Declaration of Dividend

The continuous audit is also helpful for the declaration of the dividend. As the accounts are checked throughout the year, so the audit accounts are ready for the declaration of dividend.

7. Upto Date Accounts

Accounts of the business are kept up to date by the staff because they know that auditor may visit and check the accounts at any time.

8. Chance of Over Looking Reduces

Auditor has a close contact with the details of the accounts and he has also sufficient time to check the records. So the chances of over looking are reduced in this type of audit.

9. Quick Presentation of Accounts

Continuous audit is very useful because accounts are maintained regularly. So as the financial years end final audited accounts are presented before the shareholders.

10. Accounts Completion

Another audit benefit is the early completion of the accounts checking. The results of audit can be found out just at the end of the accounting period.

11. Moral Check

In the continuous audit the auditor make the surprise visit in the business. The clerks are not aware about the visit. So they are alert and efficient in their work. There is less chances of frauds in this type of business.

12. Convenient for Auditors

In this audit, the several visits paid by the auditor to the client’s office in enable his work to proceed easily and smoothly. It also increases his confidence in his capacity to do his work efficiently and effectively.

13. Regular Staff

The regular visits performed by the auditor, make the clerks alert to maintain the accounts up to date and accurate for fear that the auditor may land up in the office any time.

14. Sufficient Time

Continuous audit provides sufficient time to the audit staff. The important and ambiguous matters may require more time to draw conclusion. There is ample time for such matters.

15. No Missing Entries

Continuous audit is also helpful in keeping the full record. In the record there is no missing entries.

16. Early Correction of Errors

The continuous audit is helpful for early correction of errors. The auditor can point out

17. Prompt Filing of Returns

The continuous audit is also helpful for the prompt filing of returns. The management can submit audited account to the registrar as soon as the end of the year.

18. Early Meetings

This audit is helpful for the early meeting of the shareholders. The accounts are presented for the distribution of profit.

19. Surprise Visits

The continuous audit provided chances of surprise visit to audit staff. The accounting staff becomes alert due to surprise visit. It is essential for eliminating the chances of error and frauds.

20. Upto Date Record

The continuous audit is useful for keeping the up to date record. Such record is needed by management for borrowing funds, settlement of tax and dealing with labor union.

21. Even Work Load

Due to even workload, the audit staff feels the satisfaction. The books of accounts are maintained as the routine matters. And there is less chances of errors and frauds.

22. Auditor Advice

In the continuous audit the auditor can find the weakness of the business during the year and he can make the suggestion for the improvement of the business.

23. Close and Extensive Check

As the auditor visits the client’s office after a month or so, but at regular intervals, a detailed close and exhaustive cheek can be possible. If the audit is to be under taken after the end of the year, such detailed checking will be difficult.

24. Technical Detail

In a continuous audit, the auditor is more in touch with the technical details and business affairs. So, the auditor can help his clients by giving him the valuable suggestions to improve business.

25. Distribution of Work

Continuous audit is also helpful in distribution of load of work on the staff. The work of audit continues the whole year. The audit staff can easily make the audit program according the time required.

Disadvantages of Continuous Audit

1. Alteration of Figures

The records and figures in the books of accounts, which have already been checked by the auditor, may be altered after the audit is over. A dishonest clerk can do it do defraud the accounts.

2. Expensive

Continuous audit is more expensive as compared to other kinds of audit, because the auditor has to devote more time to this audit.

3. Inconvenience

In this audit, the auditor visits the client’s office at regular intervals to check the accounts and records these frequent visits made by the auditor may dislocate the work of his client and cause convenient to him.

4. Mechanical Work

The work of audit becomes too mechanical because it remains continue throughout the year.

5. Queries Problem

If the auditor’s two visits interval is long then so many queries remains outstanding.

6. Small Business

Continuous audit is not fit for small business concerns. A small business has few transactions so there is no need of audit for whole one year. The owner as manager can know facts behind books as details audit is burden.

7. Client Work

The demerit of continuous audit is that the work of the client suffers due to clash of duties and the client staff remaining busy for the whole years. When the audit work is started work of accounting staff as books are not spare.

8. Staff Intimacy

The accounting staff and audit staff work side by side for the whole year. Friendship among the employees and auditors may lead to error and frauds. The sympathetic view of audit staff may fail to show true and fair view.

9. Missing Link

In the audit the auditor has to come at regular interval to check the accounts and hence the link between the past and present work cannot be maintained. Consequently the thread of work is very likely to be lost.

10. Low Income

The continuous audit keeps the staff busy for one year. They are not able to start and complete many audits at the same time. The given to one business is much higher as compared to final audit. So it is not suitable for audit staff from financial point of view.

11. Spoon Feeding

Frequent visits by the auditor may induce the client’s staff to depend upon him even for minor things.

12. Expensive

A continuous audit is an expensive form of audit in that the more frequent visits by the auditor means the higher fees of auditor.

13. Wastage of Time

This type of audit is not helpful for the auditor because in this time period they cannot conduct any other audit. So this is low-income audit for the auditor.

14. Words of Client

Another disadvantage of the audit is that the works of the client staff suffer due to the work of both positive. The books of the accounts are not free for the other party to do.

15. Type of Business Concern

This is not fir for the small type of business concern. In the small business concern, there are only few transactions. So there is no need for this concern.

16. Mechanical Work

In this type of audit, the auditor has to repeat all the products as bookkeeper does where as audit work by nature should not be under thinking and boring.

17. Extensive Notes Taking

In this type of audit possible alteration after audit can be avoided by taking note on diary regarding audit of internal control. So the continuous audit requires the compilation of bundle of notes.

18. Chances of Collusion

Frequent visits of auditor may establish some unhealthy relationship between the client’s staff and auditor’s staff. Thus there are chances of moral check. Upon them and there may be collusion between them.