What is Continuous Audit? Discuss Continuous Audit Merit and Demerits.

Continuous audit is an audit which is continuously done throughout the year. Continuous audit involves detailed examination of transactions, books of accounts including different supporting vouchers and documents by the audit staff continuously throughout the year or at regular intervals say fortnightly, monthly or quarterly. Continuous audit enables completion of audit at the quickest possible time after closing of accounts.

A Continuous Audit is one where the auditor or his staff is continuously engaged in checking the accounts during the whole period or where the auditor or his staff attend at regular or irregular intervals during the period.

Merits of Continuous Audit.

Since the audit is conducted continuously, errors and frauds are detected early and quickly, with the result that there is adequate time for making the necessary rectification.

Since the auditor is visiting his client frequently at short intervals, it is possible to check the accounts thoroughly and closely.

Since the auditor may pay a surprise visit, he exercises a great moral check on the clients staff. The staff will be afraid of committing errors and frauds as there are greater chances of their being detected.

Audit work in such a case continues throughout the year, therefore the accounting work is also done side-by-side. This helps in the preparation of final accounts immediately after the end of the year.

Demerits of Continuous Audit.

Those figures which have already be checked by the auditor in the books of accounts during his previous visit may be altered and frauds maybe perpetrated.

In case of continuous audit presence of the auditor and his staff creates hindrances in the regular work of the business house.

Due to frequent visit by the audit staff, the clients staff may develop intimacy and friendship. Thus, audit staff may fail to detect errors and frauds properly.

Continuous audit is more expensive. Since the auditor and his staff visits the organization more frequently and the management has to spend more of them, both in term of time and money. Auditor also charges higher fees for continuous audit.