Continuous Audit
What is a Continuous Audit?
Continuous audit or a detailed audit is an audit which involves a detailed examination of books of accounts at regular intervals i.e. monthly, quarterly or yearly. The auditor visits clients at regular intervals during the financial year and checks each and every transaction.
An auditor checks the profit and loss account and the balance sheet at the end of the year. A continuous audit is not really useful to a small firm because its accounts can be audited at the end of the financial year without much loss of time. Banks conduct continuous audit which is otherwise known as concurrent audit in big branches.
Business where continuous audit is applicable:
1. Where it is desired to present the account just after the close of the financial year, as in the case of a bank.
2. Where the volume of the transactions is very large.
3. Where the statements of accounts is required to be presented to the management after every month or quarter.
4. Where no satisfactory system of internal check is in operation.
Advantages of Continuous Audit
1. Easy to quick discovery of errors
Errors and frauds can be discovered easily and quickly as the auditor checks the accounts at regular intervals and in detail. As a auditor visits the client after a month or two or so on, the number of transactions will be small and hence, the errors will be detected easily and quickly.
2. Knowledge of technical details
Since the auditor remains more in touch with the business, s/he is in a position to know its technical details and hence can be of great help to her/his clients by making valuable suggestions.
3. Quick presentation of accounts
As most of the checking works are already performed during the year, the final audited accounts can be presented to the shareholders soon after the close of the financial year at annual general meeting.
4. Keeps the client's staff alert
As the auditor visits the clients at regular intervals, the clerks are very regular in keeping the accounts up-to-date. They will see that there is no in accuracy or frauds as it would be detected by the auditor at the next visit.
5. Moral check on the client's staff
If the auditor pays surprise visit, it will have a considerable moral check on the clerks preparing the accounts as they do not know when the auditor may pay a visit to check. Moral check will be more valuable to make staff alert and careful.
Disadvantages of Continuous audit
1. Alteration of figures
Figures in the books of account which have already been checked by the auditor at previous visit, may be altered by a dishonest clerk and the frauds may be committed.
2. Disturbance of client's work
The frequent visits by the auditor may disturb the work if the client and cause inconvenience to the latter.
3. Expensive
Continuous audit is an expensive system of audit because an auditor devote more time. So, company needs to pay more amount as the remunerations of an auditor.
4. Queries may remain outstanding
The audit clerk may lose the thread of work and the queries which s/he wanted to make may remain outstanding as there might be a long interval between two visits.
5. Extensive note taking
Extensive note taking may be necessary in order to avoid any alteration in the figures after the audit.
Steps to be taken to make continuous audit effective
1. The management should ensure that the books are not altered after the audit is completed. If necessary, any alteration can be made only after obtaining the approval of the auditor.
2. The auditor should use special ticks and marks during audit and the implication pf each mark should be kept confidential.
3. The audit notes, queries and remarks should be written date-wise and maintained. This will enable smooth flow of audit.
