What Is Annual Audit
Annual Audit is also known as Periodical Audit or Final Audit or Complete Audit. This type of Audit is usually done at the end of the year after the preparation of the Final Accounts. The Auditor does the audit work till the time all the account books and statements prepared are verified and examined by him his staff. This type of Audit is done only once a year. Such audit is most suitable and satisfactory as well as practical for the small organisations. However, extensive examination of Account Books is not possible under such audit.
"Annual Audit is that which starts at the end of the financial year concerning to the Audit. It does not have of Continuous Audit."
Lawrence R. Dicksee,
"Annual Audit means such Audit which does not start before the close of the financial year and continues till the time the audit work is completed."
Walter W. Bigg,
Advantages of Annual Audit
Periodical Audit has the following advantages:-
Saving of Time-
In such Audit the Auditor comes to the organisation for audit work only at the end of the year. He does the audit work in less time and this sutits the organisation also.
No Chance of the Figures Alterations-
Unlike Continuous Audit, in Periodical Audit there is no possibility of making alteration in the figures in the account books, as audit is done only after the finalization of the accounts.
Economical-
Periodical Audit is quite economical since the audit fees charged by the Auditor is comparatively less as also the organisation has to bear the expenses of Auditor's staff only once in a year.
Continuity in Work-
Periodical Audit does not disturb the smooth and routine working of the commercial organisation. The audit work does not obstruct in any manner the accounting work, because the old books are closed and they are replaced by the new books of account. This process does not come in the way of the smooth working of the organisation.
Advantages to the Auditor-
Periodical Audit is also advantageous to the auditor since he gets all the account books, vouchers and necessary information at a time. He thereby is able to complete his work without loss of time. He can also take up the audit work of other organisations simultaneously.
Disadvantages of Annual Audit
Periodical Audit has the following disadvantages:-
Lack of Deep Checking-
The commercial organisation writes the account books throughout the year and prepares the final accounts on its basis only at the end of the year. Audit work takes place only at the end of the year within a limited time and an Auditor thereby can not make extensive examination.
Slackness in Moral Duty-
This type of audit work does not leave any moral impact upon the employees because they know that their work is to be audited at the end of the year and that too after several months. This makes them careless. It is also possible that by the time audit takes place they leave the organisation for good.
Difficulty in Detecting Errors and Frauds-
The audit work starts only after the end of the year. The Auditor feels difficulty in detecting the errors and frauds at this stage. Specially when the errors and frauds are intentionally done. The intentional errors and frauds are committed by the staff of the commercial organisation throughout the year, and therefore, it is not an easy task for the auditor to detect them within a limited time at his disposal during the course of such audit.
Delay in Audit Report-
Annual Audit is done only at the end of the year. The Auditor takes his own time in the preparation and submission of the audit report. The management and the shareholders of the commercial organisations thus have to wait for long for getting the audit report.
Inconvenient for Big Trading or Manufacturing Business Institutions-
In large-scale commercial and manufacturing organisations the number of transactions taking place is quite large. The production is done on a massive scale and the sales turnover is also quite high.In such cases, Periodical Audit is not suitable for such organisations. Continuous Audit is a best choice for them.
