Definition of advanced auditing problems…
Once
we complete preparing the final statement and accounts for the year the
accounting process is over. Let us see the auditing meaning and features of an
audit.
Advanced
Auditing problem Meaning…
·
We will be learning about advanced auditing problems as it
relates to accounting and the finance world. So audit meaning through
inspection of the books of accounts of the organization. The international
federation of accountants has given the following definition of ‘’audit’’ is an
independent inspection of the financial information of any organization,
whether profit-oriented or not profit-oriented.
·
The one important thing to remember is that an advanced
auditing problem is a close inspection of the books of accounts, but it does
not absolutely guarantee error-free books.
Features
of an Advances Auditing Problem…
·
Auditing is a systematic process. An audit is the examination
of all books of accounts and financial information of the company. So it is
essentially a verification of the final accounts of the organization, the
profit and loss statement and the balance sheet at the end of the financial
year.
·
Auditing is not only the view of the books of accounts but
also the internal systems and internal control of the organization. The audit to
conduct we need the help of various sources of information. Vouchers,
documents, certificates, questionnaires , explanations etc. Any other documents
he sees fit like Memorandum Of Association, Articles Of Associations, vouchers
minute books, shareholders register etc.
·
The auditor must completely satisfy himself with the accuracy
and authentically of the financial statements. He give the opinion that they
are true and fair statement.
The
main types of functional audits…
·
Propriety auditing
·
Efficiency auditing
·
Operational auditing
·
Voucher auditing
·
Statutory auditing
·
Social auditing
·
Cast auditing
Types
of advance auditing problems…
·
Continuous audit; The account more frequently the auditor
should examine, the shareholders may appoint the auditor to conduct continuous
audit, and where the auditor examines, records of the accounting at frequent
intervals throughout the accounting year, such audit is called as continuous
audit.
·
Final audit; The accounts of the auditor examines of the
whole accounting year in one continuous session such audit is termed as final
audit. A final audit may be started before the end of accounting year.
·
Interim audit; In case of joint stock company, such need
arise when the directors want to declare interim dividend. A partnership may
need an interim audit at the time of admission or retirement of a partner.
Ø Following is the difference
between continuous, final and interim audit:
Cost
of audit:-
·
Continuous Audit; Continuous audit is costly as the auditor Spend
greater time and make detailed, checking of books of accounts so auditor
charges their fees accordingly.
·
Final Audit; Final audit is least expensive in terms of cost
as the auditor makes test checking and whole work is performed once only.
·
Interim Audit; The interim audit is costly than a final audit
but economical than the continuous audit due to the proportion of auditors time
spent.
Suitability:-
·
Continuous Audit; Continuous audit is suitable for large
scale business, multi-national companies, companies having long volume of
transactions.
·
Final Audit; Final audit is suitable for small scale
business, medium scale business, large scale business.
·
Interim Audit; Interim audit is suitable for medium scale
business, large scale business.
Sampling:-
·
Continuous Audit; In continuous audit sampling is not used by the auditors. They examine the
whole population and majority of transaction.
·
Final Audit; Auditors make full use of sampling techniques to
reduce their workload and to reach sound conclusion without examining each and
every transaction.
·
Interim Audit; The auditors are usually able to select large
sampling size and they can examine the items on a recurring base.
Time
of Conduct:-
·
Continuous Audit; Continuous audit is usually conducted on
yearly basis and auditors attend office regularly.
·
Final Audit; Final audit is started at the end of financial
period or when the books of accounts have been closed.
·
·
Interim Audit; Financial year is divided into two or three
interim financial periods and work of audit is started soon after the end of
interim period.
Objectives:-
·
Continuous Audit; The objective of continuous audit I’d easy
and early rectification of errors and frauds.
·
Final Audit; The objective of final audit is to determine and
show the true and fair view of financial statement.
·
Interim Audit; Interim audit examines the books of accounts
and other record up to a particular period.
Internal
Control System:-
·
Continuous Audit; In a continuous audit, the internal control
system of entity is analyzed in great detail and useful recommendations are
made for its improvements.
·
Final Audit; In case of final audit, there must be an
effective internal control system in an organization.
·
Interim Audit; In case of interim audit, there must be an
effective system of internal control in an organization but not as essential as
in case of final audit.
Check
on Accounting Staff:-
·
Continuous Audit; On account frequent and surprise visits of
the auditor, continuous audit imposes greatest amount of psychological pressure
on the accounting staff.
·
Final Audit; Final audit exerts least amount of psychological
pressure on accounting staff as the auditor examines books of accounts only
after the end of accounting year.
·
Interim Audit; Auditor examines the books of accounts either
once or twice during the accounting year or also after the end of accounting
year therefore, value of interim audit as a check on accounting staff is less
than continuous audit nut it is more than final audit.
Seasonal
Industries:-
·
Continuous Audit; Continuous audit is not a useful type of
audit for seasonal industries.
·
Final Audit; It is most suitable type of audit for seasonal
industries.
·
Interim Audit; It may be a suitable type of audit for
seasonal industries.
Alteration
in Figures:-
·
Continuous Audit; Accounting staff knows that the entries
that have been checked by the auditor will not be checked again during his next
visit. Therefore, a dishonest clerk may alter figures in the book of accounts
that have already been checked by the auditor at his previous visit and the
frauds maybe perpetrated.
·
Final Audit; As the audit is completed in one continuous
session and once the records are delivered to the auditor they are not accessible
by the accounting staff, therefore, there is no chance of such manipulation and
alteration in figures.
·
Interim Audit; The entries checked during interim audit here
not rechecked at the time of final audit
and after interim audit accounting records kept under the custody of accounting
staff, therefore, there are chances that the accounting staff may make
alteration in the records.
Reporting:-
·
Continuous Audit; As the work is complete after the
accounting works so the auditor is liable to issue his report soon after the
end of accounting period.
·
Final Audit; It usually takes long time for the auditor to
complete the audit, resolve his queries and issue the report.
·
Interim Audit; The report is issued relatively earlier than
the final audit.
Extent
of Checking:-
·
Continuous Audit; A continuous audit throughout the year
therefore, the auditor has ample time and he can make detailed checking of the
transactions.
·
Final Audit; The extent of checking is moderate and depend on
auditor’s assessment of risk, materiality and sampling considerations.
·
Interim Audit; The extent of check is lower than continuous
audit and more than a final audit.
Regular:-
·
Continuous Audit; It is a regular feature of business as it
is conducted every year.
·
Final Audit; It is a regular feature of business as it is
conducted every year.
·
Interim Audit; It is a not a regular feature of business as
it is conducted occasionally.
Detection
and Prevention of Errors:-
·
Continuous Audit; Continuous audit is more effective in
detection and prevention of errors are corrected as they are detected.
·
Final Audit; Chances of detection of errors and frauds are
lesser in final audit due to smaller sample size.
·
Interim Audit; In interim audit errors and frauds can be
detected and prevented more effectively as compared to final audit.
Third
party Interest:-
·
Continuous Audit; Third parties have some interest in
continuous audit as it serves their purpose.
·
Final Audit; Third parties have some interest in final audit
as it serves their purpose.
·
Interim Audit; Third parties have no interest in interim
audit as it does not serve their purpose.