What is an Interim Audit? Objective | Advantages & Disadvantages
As the name indicates, an interim audit is done for an interim period, i.e., a period of less than complete 12 months. In this blog, we have discussed the meaning, objective, advantages and disadvantages of conducting this audit.
What is an interim audit?
An interim audit refers to an audit that is conducted for a part of the accounting year. Here, the books of account pertaining to a certain period during the year are put under scrutiny. The objective is to know the interim profits and financial position up to a certain date before the end of the financial year. It could be for four months, six months, or similar.
In other words, it refers to an audit that is conducted between two annual audits.
It is mostly conducted for a specific purpose, for example, for the declaration of interim dividends by a joint stock company. Whenever a company wants to declare an interim dividend, it becomes necessary to get the audit of accounts done up to the date on which the company wants to declare the dividend. Suppose if a company wishes to declare an interim dividend as on 31st September 2022, the audit of accounts would need to be done for part of the year i.e., from 1st April 2022 to 31st September 2022. And it will be termed an interim audit.
Therefore, this type of audit involves a complete audit of accounts for a part of the year i.e., from the date of the last Balance Sheet to the date of the interim accounting period.
What is its objective?
The basic objective of an interim audit is to know the reliability and accuracy of the books of account of a business for a specific period (and not the whole year). For example, to know the accuracy of half-yearly financial statements.
As stated earlier, the purpose behind this could be to declare an interim dividend or to determine the value of shares at a certain date, in case of mergers.
Advantages and Disadvantages
Some of the major advantages of this audit are as follows:
1. Interim audit facilitates the work of the final audit. When an auditor takes up the audit work at the close of the financial year to conduct an annual/final audit of the financial statements at year-end, he is obviously going to benefit if interim audit reports are already available to him. The interim audit will lessen the quantum of testing to be done as a part of the client’s books will already be checked.
2. Interim audit proves helpful in the preparation and validation of interim accounts. Sometimes the preparation of interim accounts become necessary for the purpose of the declaration of interim dividend.
3. When a company resorts to interim audits in addition to its annual audit exercise, fraud and errors can be detected more quickly.
4. Moreover, this type of audit also acts as a moral check on the staff of the client since it is conducted during the course of the financial year. Staff members remain vigilant in performing their duties because they know that the accounts are being subjected to audit even before the close of the books.
5. Interim auditors can give suggestions to the management. Since the accounts are checked for a part of the year, it allows the management to rectify any mistakes noticed in the financial performance of the business before the books are closed. For example, the deficiencies noticed during the first part of the year can be worked upon during the later part of the year.
Conducting an interim audit also poses some challenges. These are as follows:
1. Even though an interim audit is usually conducted by professionals, it has no legal status.
2. The chances of altering figures in the accounts after they have been audited cannot be completely ruled out. The client’s staff might alter the books of account after they have been audited.
3. The conduct of an interim audit puts more work burden on the audit staff. The staff or the audit team is required to make additional notes after the completion of the interim audit.
4. This type of audit can also disturb the routine accounting work in the office of the client since it is conducted during the course of the financial year.
5. Lastly, it involves additional time, cost, and work.
How is an interim audit different from an internal audit?
This audit should not be confused with an internal audit. Unlike an interim audit that is done for a particular period and for a particular purpose, the purpose of an internal audit is more diverse. An internal audit is a controlling tool in the hands of a company that measures and evaluates the effectiveness of its affairs primarily in accounting, operational, and financial matters.
The job of an internal auditor is to make sure that the company is working in a smooth and efficient manner and that all governing rules & regulations are adhered to. He seeks to ensure that a proper internal control system is in place in the company to prevent fraud and misappropriations.
Also, while an interim audit is performed by professionals, an internal audit is usually done by a company’s in-house team.
How is it different from a continuous audit?
An interim audit is also different from a continuous audit. A ‘continuous audit’ is an auditing process that examines accounting operations continually, throughout the year. It allows for a more thorough & extensive examination of accounting records and related documentation because the auditor has more time at his disposal.
Moreover, a continuous audit is likely to be more expensive and it is performed by the firm’s internal audit team or with the aid of technology.
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