Topic-7: Continuous Audit
Introduction
Continuous audit is an audit where auditor visits his client at frequent intervals during the financial year. The
auditor makes a detailed checking of the business transactions during his regular or irregular visits say daily,
weekly, monthly or quarterly.
Definition
Continuous audit is one where the auditor or his staff, is constantly engaged in checking the accounts during
the whole period, or where the audit staff attends at regular or irregular intervals during the period.
Characteristics of continuous Audit
(i) Regular visits of the auditor
(ii)Audit remains in progress throughout the year.
(i) Detailed checking of transactions.
(ii) Securing greater reliability of information
(iii) Surprise visits of the auditor.
Application of continuous audit
Continuous audit is employed under the following circumstances.
(i) In large scale business in which volume of transaction is huge.
(ii) Where monthly audited accounts are required through out the year.
(iii) Where internal control system is weak.
(iv) Where it is desired to present the accounts just after the close of the financial year, such as in case of
banks & other financial institutions.
Advantages of Continuous Audit:
1. Sufficient time
Continuous audit remains in progress throughout the year, therefore the audit staff has enough time to check
the books of account and related documents.
2. Detailed checking
Auditor has to visit his client regularly; therefore detailed checking of the business transaction is possible
3. Early discovery of errors and frauds
Errors and frauds can be discovered easily and quickly.
4. Reduction of errors
In continuous audit the transactions are audited on timely basis. This assists the auditor to locate errors.
5. Up to Date and accurate accounts
The regular visits of the auditor contribute in keeping the books of accounts up to date and accurate.
6. Reliable information
In a continuous audit the transactions are verified on a regular basis, thus errors are eliminated. As a result of it
the accounting information becomes more accurate and reliable.
7. Surprise visit
In a continuous audit auditor pays surprised visit which means that he may visit his client without any prior
information. Such surprise visits has considerable moral check on accounting staff.
8. Assessment of internal control
Auditor has sufficient time to spend in the organization. He can check the application of management policies
and procedures. As a result of his observation he can suggest measures to improve weakness in the internal
control system.
9. Interim Dividend
Continuous audit is helpful to declare interim dividend. Interim dividend means dividend declared during the
financial year generally during mid of the year.
10. Less chance of over looking
Auditor remains in constant touch with various aspects of the business. He has a better knowledge of
organization activities. Under such situations it is less likely to over look any important financial point or
commitment.
Disadvantages of continuous Audit
1. More Expensive
This type of audit is more expensive as the auditor makes several visits and performs detailed checking. Fee
charged by the auditor is considerably high on account of multiple visits.
2. Chances of intimacy or unhealthy relationship
The accounting staff and audit staff work side by side for the whole year. This may result into friendship
between them. They may try to cover the errors or frauds of their friends in the accounts department.
3. Interruption in client’s work
The frequent visits of the auditor may cause inconvenience to the client
4. Unnecessary dependence on Auditor
Accounting staff may not place trust on their abilities. In case of any difficult or unusual situation they may
keep their work pending waiting for necessary advice from the auditor.
5. Not applicable to small business
Continuous audit is not suitable for small business where the volume of transaction is small.
6. Contingencies and Commitments
In continuous audit financial statement are issued soon after the close of the financial year, therefore the
auditor is unable to verify the final outcome of the contingencies before the financial statement are published
