What Is Continuous Audit
Continuous Audit means an audit wherein an auditor and his staff audits the account books throughout the year or after the fixed interval.
"A Continuous Audit is one where the Auditor or his staff is constantly engaged in checking the Accounts during the whole period or where the Auditor or his staff attends at regular or irregular intervals during the period."
R.C. Williams
Need of Continuous Audit
- Electricity Supply Companies,
- Banks,
- Gas Companies,
- Railway Companies,
- Mining Companies,
- Whole-sale Consumer Store Union,
- Super Bazar,
- Co-operative Store,
- Co-operative Marketing Society,
- Departmental Store
- Multiple Shops etc.
Advantages of Continuous Audit
Continuous Audit has got following advantages:-
Extensive and Intensive Checking-
In Continuous Audit an auditor has to do his audit work throughout the year whereby he gets an opportunity of extensive checking and examination of all the transactions. Thereby no transaction of the commercial organisation is left out.
Good Moral Effect on Employees-
As auditing is done after interval which is not certain, employees of the organisation get a moral effect by it and these employees do their work carefully and efficiently and also keep the work up-to-date and complete.
Easy Detection of Mistakes and Frauds-
Since Account books are extensively examined and checked, errors and frauds are quickly detected. Possibility of errors and frauds by employees are also minimized.
Quick Preparation of Final Accounts-
In Continuous Audit, audit work continues throughout the year, therefore, the accounting work by side with also continues side audit work. This helps in the preparation of Final Accounts immediately after the end of the year. The financial results of the organisation are also known without any delay.
Suggestions for Improvements-
The auditor since remains in touch with the working of the commercial organization in course of his audit work, he can easily suggests measures for improvements in the maintenance of account books. The management can prepare plans, for the development of the organisation and for the future working on the basis of these suggestions.
Advantages to Shareholders-
Continuous Audit keeps the employees of the commercial organisation on their toes, and therefore, the management is not able to take personal advantage at the cost of the shareholders. Secondly, Final Accounts are prepared and they can be mailed to the shareholders immediately.
Convenience to Auditor-
In Continuous Audit an auditor can plan his audit work easily and nicely because he has the whole year at his disposal for audit work. Resultantly, he can minimize the pressure of work in the last months of the year.
Other Advantages
Continuous Audit help in the declaration and distribution of interim dividend. It is also helpful at the time of sale of the business unit, as for both these cases audited accounts are available. Therefore, Continuous Audit helps in verifying and certifying the account books any time during the year.
Disadvantages of Continuous Audit
The following disadvantages of Continuous Audit may be stated:-
Change in Figures-
In Continuous Audit some part of the accounting work is completed earlier, and therefore, there is a fear that the account books which have been audited may be tampered later on by the employees. If this happens then the Final Accounts shall not be able to show the true picture of the commercial organisation.
Hinderance in the Work of Business-
In Continuous Audit, presence of the auditor and his staff creates hinderance in the regular work of the commercial organisation. Attention of the employees is drawn by them and some of the employees are asked to attend them only. This creates obstacles in the smooth working of the business-houses. Sometimes, even the management feels inconvenience due to the frequent appearance of the auditor.
Expensive-
Continuous Audit is expensive than Balance Sheet Audit. Since the auditor and his staff visits the commercial organisation to frequently, the management has to spend more on them, both time-wise and money-wise. Further auditor charges more audit fees for Continuous Audit.
Break of Work Chain-
In this system the audit work is done in piece Every time the auditor has to prepare his audit programme before starting his work. This requires more time and energy on his part.
Secret Pact with Employees-
The staff of the auditor comes in close contact with the employees of the organisation. It develops intimacy with them and there is every possibility of concealment of important facts with their connivance.
Mechanical Work of Auditing-
The audit work becomes mechanical since the work continues throughout the year and the interest of the staff or auditor is reduced. This has an adverse impact on audit work.
Luxury for Small Business-
Continuous Audit is more expensive, and therefore, small-scale commercial organisations are not able to adopt it. If they go for it, it proves to be a waste and luxury for them.
Decrease in Moral Duty of Employees-
The auditor visits the commercial house too frequently. This adversely affects the moral of the employees of the organisation as they do not pay attention to the audit work and the auditor. The staff of the employer may become friendly with the closeness/nearness the auditor and his staff. This may give an opportunity to misuse this relationship.
Precautions Against Disadvantages of Continuous Audit
The following precautions should be taken against the disadvantages of Continuous Audit :-
Strict Warning to Employees-
Employees should be warned not to tamper the figures after examination of the account books by the auditor or his staff. If any alteration is required for the corrections of the errors Or otherwise it should be made through Journal.
Use of Special Secret Symbols-
During the course of audit the staff of the auditor should use specific and secret symbols which should be discussed among themselves but in no case with the employees of the commercial organisation.
Checking Impersonal Accounts at the end of the Year-
Checking of all Impersonal Accounts be deferred till the end of the year because any sort of change made in the Impersonal Accounts can conceal the errors and frauds of the Impersonal Accounts.
Change in Audit Staff-
The auditor should make changes in the audit staff who are required to undertake such audit from time to time so that they do not get an opportunity to develop friendship with the employees of the organisation and may have not collusion with them.
Use of Audit Note Book-
Auditor should maintain an audit note book wherein he should note down all important papers, audit programme list of important efforts made by him and such other useful facts.
Pre-planned Programme-
Auditor should pre-plan programme of the audit work and distribute it among his staff. He should give important instructions to them and also see that his staff follows such instructions carefully and honestly.
Checking of One Part in One Sitting-
Auditor should see that a particular aspect or part of audit be completed in one sitting. He should not carry forward the part of the work for the subsequent date(s).
Other Suggestions-
To guard from the disadvantages of Continuous Audit some other precautions may be taken, which are given as below:
- To the extent possible, the organisation should adopt system of internal checking.
- To check the system of audit work, a progressive schedule should be prepared.
- Figures written in pencil should be accepted only when they are written in ink.
- The auditor and the staff should use a different type of ink than the ink used by the commercial organisation.
