Interim Audit

Question 1

What is it?

Answer 1

The terms “interim audit” and “final audit” refer to different stages in the audit process. Here are the main differences between the two:

Interim Audit

1. Timing:
   
   • Conducted during the financial year, often mid-year or at regular intervals.
2. Purpose:
   
   • To review the company’s internal controls and accounting systems.
   • To detect and correct any errors or irregularities before the year-end.
   • To provide early assurance that the financial statements will be accurate.
   • To facilitate the final audit by performing preliminary checks and tests.
3. Scope:
   
   • Focuses on areas such as internal controls, compliance with procedures, and the accuracy of transactions up to that point.
   • Tests specific account balances and transactions up to the date of the interim audit.
4. Documentation:
   
   • Reviews working papers and documents related to interim periods.
   • May generate interim reports on findings and recommendations for improvement.
5. Advantages:
   
   • Spreads the audit workload over the year, reducing pressure at year-end.
   • Early detection of errors, allowing for timely corrections.
   • Provides management with early feedback on financial and operational performance.

Final Audit

1. Timing:
   
   • Conducted at the end of the financial year, after the accounting period has closed.
2. Purpose:
   
   • To provide an overall opinion on the financial statements for the entire financial year.
   • To ensure that the financial statements give a true and fair view of the company’s financial position.
   • To verify the accuracy and completeness of the year-end financial statements.
3. Scope:
   
   • Comprehensive and covers all aspects of the financial statements.
   • Involves detailed testing of account balances, transactions, and disclosures as of the year-end.
   • Reviews the work done during the interim audit and integrates those findings.
4. Documentation:
   
   • Includes the review of year-end financial statements, adjusting entries, and supporting documentation.
   • Prepares audit working papers that form the basis of the final audit opinion.
5. Advantages:
   
   • Provides a complete and accurate picture of the financial health of the company for the year.
   • Ensures that all significant transactions and events are accounted for correctly at year-end.
   • Forms the basis for the auditor’s report and opinion on the financial statements.

Key Differences

• Timing: Interim audits are performed during the year, while final audits are performed at the end of the year.
• Purpose: Interim audits focus on internal controls and early detection of issues, while final audits aim to provide a comprehensive opinion on the year-end financial statements.
• Scope: Interim audits cover transactions and balances up to the interim date, whereas final audits cover the entire financial year and include year-end adjustments.
• Documentation: Interim audits involve interim period documents, while final audits include year-end documents and final adjustments.

By performing both interim and final audits, auditors can ensure a thorough and efficient audit process, providing reliable assurance on the financial statements.

Question 2

Procedures?

Answer 2

• Cast the interim financial statements to verify arithmetical accuracy.
• Enquire of management of any changes to the company that have occurredduring the period since the last audited financial statements. This enables the auditor to obtain an understanding of changes that are likely to affect the interim financial statements.
• Compare the statement of profit or loss items to prior year interim financial statements and budget for the same period and enquire of management for any significant differences.
• • Compare statement of financial position balances with the same period last year and with the latest audited financial statements and investigate any unusual fluctuations.
• • Calculate the gross profit margin and compare with the gross profit margin in the latest audited financial statements and the prior year interim financial statements.Investigate any unusual fluctuations.
• • Calculate the receivables collection period and compare with credit terms offered to customers to identify any possible overstatement of receivables.
• • Calculate the payables payment period and compare with credit terms given by suppliers to identify any possible misstatement of payables.