Topic – 08

Interim Audit and its advantages & disadvantages

Interim Audit
An audit which is conducted in between the two annual audits is called interim audit. The purpose
of interim audit is to find out interim profit. Interim profits are needed to declare interim
dividend.

Definition
When an audit is conducted up to a particular date within the accounting period, it is called an
interim audit.

Advantages of Interim Audit:

1. Performance measurement service
On the basis of interim audit results, the management can evaluate the operational
performance and the management can take remedial actions.

2. Detail checking
In case of interim audit, the auditor completes whole year’s work in two sessions. As such the
auditor has more time to conduct a detailed checking.

3. Early detection of errors and fraud

As compared to final audit, errors and frauds are detected at an early date under interim
audit.

4. Correction of errors
The interim audit is helpful of correction of errors once these are discovered.

5. Early completion of final audit

Final audit can be completed soon if there has been an interim audit.

6. Moral check
The auditor examines information for smaller period of time, so employees will not indulge in
fraudulent activities.

7. Interim Dividend
Management can declare interim dividend for the interim period.

8. Up to date records
As the audit for a particular period is completed efficiently so accounting records are up to
date. These records can provide more relevant and reliable information.

9. Advice to Management
An interim audit is a source of information and feed back for the management. As a result of
this audit, management could be notified weakness in accounting and internal control system.
10. Useful for prospective investors
Prospective investors can take investment decisions based on the financial reports audited
during interim audit
.
11. Extensive note taking
Auditor generally takes notes of important balances, sub totals and totals etc. This exercise is
adopted so that any dishonest staff of the client could not alter figures checked by the auditor.

Disadvantages of Interim Audit:

1. Alteration in figure
Transactions once checked by the auditor are normally not rechecked at final audit. There is a
probability that after the completion of interim audit dishonest member of accounting staff
may make alteration in records.

2. Manipulation of accounts
Surprise visits are not common in case of interim audit; therefore there are chances that the
management can manipulate the accounts before the start of interim audit.

3. Cost of audit
Interim audit is more costly than final audit because more time and efforts are devoted by the
auditor.

4. Inconvenience to Management
To some extent it is considered as a burden on the management as it is under pressure and in
tension with the presence of the auditors.

5. Inconvenience to Accounting Staff

Accounting staff does not feel happy with the presence of the audit staff at several intervals.
Since at every visit the client’s staff has to produce all the relevant data to the auditor, hence
the audit staff finds itself in difficult situation.