What is an Interim audit? It refers to an audit conducted on a particular date within an accounting period. In large-scale business concern, the performance may be checked for a particular part of the year. Depending upon the amount of work the auditor may check the figures of a month or a quarter. The verification of assets may be left until final audit. The purpose may be the declaration of interim dividend by a public limited company. In case of partnership there may be admission or retirement of a partner, During the year the company management may take mid-term decisions about prices, investments or profits. it is an audit, which is started and completed between two balance sheets.
DEFINITION OF INTERIM AUDIT
G. William says that an interim audit is one when the auditor completes an audit up to the date of a set of interim accounts, for example. quarterly or half-yearly accounts.
L. R. Howard defines interim audit, as this is when an audit is conducted to a particular date within the accounting period.
ADVANTAGES OF INTERIM AUDIT
1. MORAL CHECK: Interim audit is useful to improve the moral standard. An auditor checks the work of every person. There is a moral check on each employee to complete his record as per rules.
2. LOCATION OF FRAUDS: The fraud can be located due to interim audit. The time between compiling and checking accounts is very short. The location of fraud is possible, as sufficient time is not given to employees.
3. CORRECTION OF ERRORS: The interim audit is helpful for correction of errors at the same time. The financial statements can show true and fair view after the correction of errors in the books of accounts.
4. EARLY COMPLETION OF FINAL AUDIT: The interim audit is helpful for the early completion of the final audit. The time spent on the final audit is reduced due to interim audit.
5. INTERIM DIVIDEND: The interim audit is conducted to declare the interim dividend. The management can prepare interim accounts for dividend purpose. The shareholders feel satisfaction over the business concern.
6. ADMISSION OF PARTNER: The admission of the partner during the year is possible due to interim audit. There is a need for an interim audit to determine the fair value of assets and liabilities. The interim audit helps all partners to settle conditions.
7. RETIREMENT OF PARTNER: A partner may apply for retirement due to any reason. There is a need for interim audit for settlement of accounts. The value of assets and liabilities are determined to find out the capital of such partner.
8. DEATH OF PARTNER: A partner may expire at any time during business life, The capital of such partner is to be determined for final payment. It is useful to settle this matter.
9. FIXING PRICES: The management has a right to fix the prices of goods and services. The cost per unit IS to be decided for adding profit percentage. Thus It is desirable for fixing the selling price.
10. MAKING INVESTMENT: The interim audit is useful for the investors. They can rely on audited accounts for making an investment. The investors can buy and sell shares on the basis of the interim audit.
11. INCREASING PROFIT: The management may be interested in raising profit level. The interim audit provides results about present profits. The increase in profit is possible after the availability of interim accounts.
12. UP TO DATE RECORD: The benefit of the interim audit is that accounting record is kept up to date. The accounting staffs have a duty to complete their work for interim audit. Thus delay in accounts is not possible.
13. NO OVERWORK: The work is distributed over the whole year. The audit staff can complete the audit work as per timetable. All employees feel satisfaction due to even workload.
14. AUDITOR’S SUGGESTION: The accounting staff can follow auditor’s suggestion. During early time of accounting year all ideas are acceptable but at the end of the year, it becomes difficult for accounting staff to add any item.
DISADVANTAGES OF INTERIM AUDIT
1. FIGURES ALTERATION: The limitation of the interim audit is that the accounting staff can alter figures after the completion of the audit; It creates confusion in the minds of audit staff at the time of the final audit.
2. ADDITIONAL WORK: The Demerit of the interim audit is that there. is additional workload on audit staff. It is not a part of the final audit. So this audit work is treated as additional workload.
3. TAKING NOTES: The audit staffs are bound to take notes of balances, totals, and sub-totals. It is an attempt by the auditor to prevent the accounting staff from changing the facts and figures.
4. CLIENT WORK SUFFER: The interim audit creates trouble for accounting staff. When the audit staffs collect accounting books, the client’s work suffers, as the books are not available for making entries.
5. INCREASES BUSINESS EXPENSES: The demerit of the interim audit is that it results in increased business expenses. Such audit is not compulsory, it is optional for management, and so audit fee is an extra expense for the business.
6. USELESS FOR THIRD PARTIES: The demerit of the interim audit is that it may not provide a guideline to third parties. The interim accounts are not final so the figures may not be reliable for making decisions.
7. IRREGULAR AUDIT: The interim audit is not conducted regularly in many concerns. The management may be interested in such audit for any purpose. So irregular audit cannot be used for future plans.