Commercial Law and Preliminaries of Auditing · Ch 5 — Different Types of Audits – I
Distinction Between Continuous Audit and Periodical Audit
4
Distinction Between Continuous Audit and Periodical Audit
Having studied all three time-based audit types individually, the syllabus specifically calls for a clear distinction between Continuous Audit and Periodical Audit — the two 'full-coverage' options an organisation must choose between (Interim Audit, being a special-purpose partial check, sits alongside rather than in direct competition with this choice).
| Basis of distinction | Continuous Audit | Periodical Audit (Final Audit) |
|---|---|---|
| Timing/frequency | Conducted at regular or irregular intervals throughout the year | Conducted only once, after the year-end, when books are closed |
| Suitability | Best suited to large organisations with a high volume of transactions (banks, big manufacturing/trading concerns) | Best suited to small and medium-sized organisations with a manageable volume of transactions |
| Cost | Generally higher, due to multiple visits and more overall staff-time | Generally lower, being a single, concentrated exercise |
| Detection of errors/fraud | Early, since checking happens through the year | Delayed, since nothing is examined until the year is over |
| Moral/deterrent check on staff | Strong, since the auditor could visit at any time | Weak, since staff know the auditor will only appear at year-end |
| Risk of alteration after checking | Present — a figure checked mid-year could still be changed before year-end, unless safeguards (like dated tick-marks) are used | Minimal — the audit is conducted after the accounts are already closed for the year |
| Dislocation of client's routine work | Higher, due to repeated visits through the year | Lower, being a single visit/engagement |
| Risk of collusion between staff and auditor | Higher, due to prolonged, repeated contact | Lower, due to limited, short-duration contact |
| Speed of finalising audited accounts | Faster, since most work is already done by year-end | Slower, since the whole audit only begins after the year-end |