Continuous audit and periodical audit are two different terms. On one hand, a continuous audit is an ongoing audit process that examines accounting operations throughout the year, and on the other hand, a periodical audit is the audit of books once a year at the end of the accounting period.
In this blog post, we have presented the differences between these two terms.
What is a Continuous Audit?
According to the Institute of Internal Auditors, USA, continuous auditing is “a method used to perform control and risk assessments automatically on a more frequent basis. Continuous auditing changes the audit paradigm from periodic reviews of a sample of transactions to ongoing audit testing of 100 percent of transactions. It becomes an integral part of modern auditing at many levels…… technology is a key to enabling such an approach.”
A continuous audit is referred to as the study and examination of a company’s financial transactions and their supporting documents on a continuous basis throughout the year, at regular or irregular intervals. The intervals may be fixed or otherwise, say a week, fortnight, or a month.
Some of the basic features of a continuous audit are as follows:
- It is an ongoing procedure that takes place throughout the year.
- It takes place at regular or irregular intervals.
- It focuses on testing each and every transaction (100% testing).
- It requires technology to be configured.
- It gives information in advance about suspected errors and anomalies.
- The auditor will make surprise visits.
What is Periodical Audit?
A periodical audit is sometimes known as a final audit. Periodical audit requires an auditor to begin his work only at the end of an accounting period. The auditor examines the financial transactions in a series of sessions or all at once.
In other words, a periodical audit is one in which the auditor does not attend until the enterprise or client has completed and closed the financial accounts, the audit assignment is taken as a whole and the checking is done all at once or at stretch.
This type of audit is ideal for small businesses. Most businesses have their accounts audited using this approach. Moreover, in the case of a periodical audit, the auditor will have access to all books of account, vouchers, and other accounting records immediately after the close of the books.
Some of the important features of a periodical audit are:
- This audit is also called a final audit or annual audit.
- The auditor will have access to the client’s records after year-end.
- The cost of auditing will be relatively low.
- Once the auditor obtains access to accounting records, he organizes the entire project in such a manner that there will not be any room for the client’s team to change any entries.
- The time required will be smaller because the auditor can complete his work in a few sittings.
Comparison between the two
The following points will summarize the key differences between continuous audit and periodical audit:
|Basis||Continuous Audit||Periodical Audit|
|Conduct||A continuous audit is conducted throughout the year.||A periodical audit is conducted at the end of the year.|
|Checking||It involves detailed checking of the books of account. It allows for a more thorough & extensive examination of accounting records and related documentation because the auditor has more time at his disposal.||Detailed checking of each and every transaction is not possible. Hence, there is a chance that some errors may be left undetected.|
|Cost||It is more expensive.||It is less expensive.|
|Errors and fraud||A continuous audit helps in the early detection of errors and fraud.||Under periodical audit, early detection of errors is not possible since books are examined only after they are completed.|
|Auditor’s visits||In a continuous audit, the auditor makes frequent as well as surprise visits to the client’s workplace. This reduces the chances of errors and fraud.||In a periodical audit, the auditor visits the client just once a year and takes up the audit work when all accounts are balanced and completed.|
|Audit work||The audit work is carried out as and when the accounts are being prepared.||The audit work is started after the accounts are prepared.|
|Convenience||It is most convenient for big enterprises.||It is most convenient for small businesses.|
|Time required||Continuously done||Smaller|
|Delay in dividend declaration||With the books of account being audited throughout the year, finalization of accounts can be made on time, i.e., just at the year-end.||The audited accounts may not be available immediately after the end of the fiscal year. It may result in a delay in the declaration of dividends and the conduct of AGM.|
|Performed by||The firm’s internal audit team or with the aid of technology||External auditors|
|Dependence on Management||All transactions and events can be examined in detail without placing excessive reliance on information supplied by management.||There is more dependence on the cooperation of management.|
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