A continuous audit is a process that looks at all of the ways an organization does accounting, checks for risks and controls, and make sure they are following the rules. It happens on an ongoing basis. The system can tell if something goes wrong, like someone trying to steal money or make a mistake in how they do things. It also means that people can check on any problems sooner and fix them quickly before it gets worse.
Advantages of Continuous Audit
The advantages of the continuous audit are as follows:
Detailed and Intensive Checking Possible
Since the audit goes on throughout the year, it is possible to have a detailed and intensive checking of the accounts as and when required.
Early Detection of Errors and Fraud
As a result of detailed and intensive checking, any error or fraud (or pre-fraud manipulation) comes to light. In case the audit is delayed and is done only at the closing of the financial year, the dishonest employees get an opportunity to manipulate the accounts to the detriment of the enterprise.
Knowledge of the Working Procedures
Having been acquainted with the company's work procedure, the auditor has a fair idea of the strength and weakness of the company, which he can pass on to the management and which may be very helpful to the management in decision - making.
Moral Effect on Employees
The fact that a company's accounts are being audited continuously and that any discrepancy will be detected as a positive moral effect on the employees, with the result that the accounts are scrupulous and up - to - date. This has a positive moral effect on the employees.
Early Presentation of Final Accounts
Since accounting and auditing are done simultaneously, there is no time gap in the presentation of the final accounts at the end of the year.
Convenience in Audit
The auditor has convenience in his work - he can easily tally the accounts and assign the same to his helpers for authentication. In this manner, the auditor does not have extra load on his head when he has to give the final report.
Early Preparation of Interim Accounts
When the directors of a company want to project the performance of a company to its shareholders or the public during a financial year, they need to have interim accounts to do that. Continuous auditing helps them do that.
Disadvantages of Continuous Audit
Following are the disadvantages of continuous audit:
Alteration in Figures
In continuous audits, the books of account are open after the audit. As such, the figures in the books of account can be altered. The employees of the company know that what has been audited will not be audited again, and dishonest employees or accountants may tamper with the figures.
Break in the Continuity of Work
The auditor comes many times during the year to check the accounts. This breaks the routine or the ' Thread of Work ' of the employees. There is also the possibility of the investigation being incomplete in some respect.
Expense
A continuous audit is only feasible and possible for big undertakings. Small enterprises cannot make use of such audits because of the expense involved.
Mechanization of Work
Work is mechanized in continuous audits, and the auditor's staff takes less interest in it. The result is that the quality of work is jeopardized. The staff is aware that the end of the year is far off, and they become slow and careless - which reduces the quality of their output.
Dependence on Employer's Staff
During the audit, at times the auditor may not be in a position to pinpoint the discrepancies in accounting and may depend on the employer's staff - which means that the employer's staff to has to spend time on the audit.
Less Moral Effect
The auditor's staff visit the establishment time and again, and get acquainted, even friendly, with the employer's staff. Relationships are established between the two, which might lead to their collaboration in any defalcation or discrepancy
Preparation of the Detailed Note
To foreclose the possibility of any tampering of figures after the audit, the auditor's staff has to make and keep detailed notes of the audit in the notebooks.
Precautions
The disadvantages of continuous audit may not be there in all cases, but the possibilities exist. The following precautions are necessary to avoid the disadvantages of continuous audit
Instructions to Employees
The employer must warn the staff that no change is made in the figures of the account after the audit. In case a change is required to be made, it must be made through a new entry in the journal, and not by deleting or changing the figures.
Use of Secret Tick Mark
To ensure that the figures in the accounts are not tampered with, the auditor can use a secret tick mark that is not known to the employees. If any type of audit change is required to be made in the figures, it may be made with a colored pencil or in different colored ink.
Use of Notebook
Important details, major totals in the accounts, and amended or rewritten figures must be noted in a notebook. These can be of use later.
Checking of Impersonal Accounts
Impersonal accounts must be checked at the time of the final audit because the possibility of defalcation is more in such accounts. The possibility of false entries in such accounts is more in other accounts.
Systematic Program
The auditor must have a systematic program of work and split the investigation of accounts into various parts. So far as possible, one part of the audit should be completed in one sitting so that the continuity is not broken. The accounts are thoroughly investigated in this manner.
Preparation of progress table
The audit should be done according to a progress table prepared beforehand wherein the items audited should be marked as and when the audit is completed
Change in audit staff
The auditor's staff visiting the establishment should be changed from time to time so that close personal relationships between the auditor's and the employer's staff do not develop and there is no collaboration between the two.