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Merits and Demerits of Continuous Audit

Updated on December 23, 2012

Audits can be classified into two groups namely; periodical audit and continuous audit. The audit which takes place at regular intervals of time i.e. annually once is called Periodical Audit. It is otherwise known as Annual Audit or Final Audit or Year End Audit or Balance Sheet Audit. On the other hand if audit work takes place continuously throughout the year it is called Continuous Audit. Here, Audit will be in Continuous touch with the undertaking. Small scale units adopt periodical audit and large scale units adopt continuous audit.

Merits of Continuous Audit

Audit in depth: Continuous audit is detailed audit. As audit work takes place throughout the year, auditor touches almost all transactions. When periodical audit is taken into consideration, auditor cannot deal with all transactions. In this periodical audit, auditor follows shortcut methods like test checking etc and goes surfacially.

Earlier detection of Frauds and Deduction: In case where continuous audit is adopted frauds and errors come into light instantaneously as soon as they are committed they will not stay in records till year end. But in periodical audit frauds and errors come out only at year end.

Honesty of staff: In case where continuous audit is adopted, the staff members who commit array will work carefully on the other hand they fear to commit frauds. It is due to auditor continuous visits. Thus, there will be enhancement in honesty.

Audit report without delay: In case adoption of continuous audit, major part of the audit work gets completed during running of the year itself. Therefore, audit report of year end can be given quickly without any delay. In case of periodically audit, auditor has to render his work at year end. So in giving audit report delay takes place.

Facilitates payment of Interior dividends: The dividend which is paid between two annual dividends is called interim dividend. While paying interim dividends, interim final accounts are to be prepared and interim audit also is to be conducted. In case of adoption of continuous audit also is to be conducted. In case of adoption of continuous audit interim audit can be conducted very easily and additional remuneration also need not be paid.

Facilitates final audit: At year end auditor has to conduct balance sheet audit also. So, final audit fall under the scope of Continuous audit. In presence of continuous audit, final audit becomes very easily maximum work of auditor would have been completed by year end.

Auditor`s advice: When ever complications auditors advice can be obtained in case of continuous audit, auditor gives prompt advises also because, he will be given consideration remuneration.

Auditor’s attention: The undertaking which have adopted continuous audit can draw the attention of auditor. It is due to considerable remuneration and continuous frauds with the undertaking.

Demerits of Continuous Audit

Collisions: In case of continuous audit, audit staff pays frequent visits to the understanding. As a consequence certain understanding may get formed between staff of undertaking and audit staff. On account of these collisions frauds may be committed so intelligently by means of assistant by audit staff.

Costly Affair: Continuous audit is very expensive. A lot of remuneration is to be paid to auditor. It increases cost of audit.

Alterations: In Continuous audit, auditor visits the undertaking at regular intervals of time, say weekly once. At weekend he examines the transaction and ticks them out. At next week end he does not come back to transactions belonging to previous week or weeks. Therefore staff of the understanding may commit fraud by making alterations in already examined figures.

Interruption of work: When auditor comes to visit, staffs of the undertaking have to stop their work and they have to give assistance to audit. Thus there will be waste of time to undertaking staff. Their work gets interrupted frequently.

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      Honey Alee 

      2 years ago

      gr8 job.. :)

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      Muhammad Rizwan 

      4 years ago

      it's a great job.God bless U!

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