Interim Audit Meaning
Interim Audit refers to the examination of books of accounts with the objective of checking the recording of transaction correctly and working of the company in the manner legally acceptable before the conduct of any statutory audit. It is an audit which is conducted between two financial years and its main objective is early identification of threats and taking corrective measures at an early stage.
Objectives of Interim Audit
- It is conducted to find out the profit of the period along with determining whether the company could pay an interim dividend or not, as interim dividend payment by the company results in value addition of the business in the mind of investors and shareholders.
- To identify and early detection of fraud and to improve the efficiency of the employees as it thoroughly examines the work done by the employees.
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Characteristics
- It is conducted between two periods; it sometimes may also be called a half-yearly audit.
- It is an in-depth analysis of all the transactions entered into or transacted with the business over a defined period.
- It is sometimes conducted to determine the book value of a share of the company.
- The organization whose interim audit is conducted is considered more reliable as compared to those whose interim audit is not conducted.
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The procedure of Interim Audit
The procedure of internal auditInternal AuditInternal audit refers to the inspection conducted to assess and enhance the company's risk management efficacy, evaluate the different internal controls, and ensure that the company adheres to all the regulations. It helps the management and board of directors to identify and rectify the loopholes before the external audit.read more varies from business to business and depends on the working of business enterprise and the voluminous of transactions; some of the essential outlay points are as follows:
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- Analyze the level of organization.
- Analyze the decision taken hierarchy of an organization.
- Analyze the working of the organization and also of the industry in which the entity operates.
- Gather information from the external and internal persons about the business.
- Have a conversation with the top management or the audit committeeAudit CommitteeA company's audit committee is a group of non-executive directors who are in charge of ensuring the integrity of internal controls, auditing, and financial reporting procedures. It works under the supervision of the Board of Directors and strives to sustain the corporate governance system.read more of the organization.
- After that, take the management representation letter that the data and details provided to examine are true and full in all aspects.
- Conduct the audit as per the guidelines lay upon by the auditing standards committee.
- Document the working papers that auditor gathers while conducting the audit.
- Consider the effect of material misstatement on the business if they are materially misstated then issue a qualified audit report or vice versa.
Applications
- The concept is used for determining the amount of dividend which the management is planning to declare as a part of profits earned by the company.
- To check where there is robust internal control of the management on the business activities and on which the management, as well as the external auditor, could rely upon it.
Benefits
- It helps in increasing the efficiency and effectiveness of the management functioning concerning the accounting and financial part of the business.
- It is less expensive as compared to other audits that are required to be conducted, and it helps in the easy finalization of final accountsFinalization Of Final AccountsFinal Accounts is the final stage of the accounting process, in which the various ledgers maintained in the Trial Balance (Books of Accounts) of the organization are presented in the specified way to provide the profitability and financial position of the entity for a specified period to stakeholders and other interested parties, i.e. Trading Account, Statement of Profit & Loss, Balance Sheet, and so on.read more.
- As the employees are well known that their work is checked by some other person, the efficiency and correctness in the work of employees tend to rise.
- As the books of accounts are finalized on the date by the professional, possessing necessary skills, the company may easily borrow funds from the financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more based on the same.
- As the books of accounts prepared are to be analyzed in-depth, the risk of fraud will significantly fall.
Limitations
- It is only to be used by management, and it does not have any connection with investors or lenders, etc.
- It only covers the financial part of the organization, but the business has several other aspects also to be reviewed for better results.
- It increases the burden, and mental pressure on the working staff as their work is checked by some outside person.
- The risk of manipulation of data rises to hide the things from being reported or detected.
- Sometimes due to error in the determination of profits accurately to shareholders, funds of the company may arbitrarily decrease.
Conclusion
‘Interim Audit’ is the way by which the management itself checks whether they are complying with the regulatory requirements or not. This audit is the preliminary step to gather information on the business conduct and considers as an integral part of the statutory auditStatutory AuditOne of the most common types of audits is the statutory or financial audit. Its main purpose is to gather all relevant information so that the auditor may provide an accurate and unbiased assessment of the company's financial position.read more or final audit. Such an audit is conducted sometimes on the request of the business entrepreneur or sometimes on account of easiness of the work to be done by the statutory auditor at the time of the final audit. Sometimes some legal requirements need to be complied with lay upon some entities for conducting an interim audit at the end of every quarter.
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