Name: Parth Dhanesha Class: SYBAF

Roll no.: 64 UID: 236801

Audit assignment 2
Q1. Explain continuous audit along with advantages and disadvantages.
Ans. Continuous Audit means an audit at regular intervals throughout the accounting
year. Generally, the audit work begins after the accounting year is over. But in case of
continuous audit the work begins in the accounting year itself. For example, if the
accounting year begins on 1st April 2012 and ends on 31 march 2013, normally audit
work would begin in April 2013 and continue thereafter. But in case of continuous
audit the work would begin in April 2012 itself and continue at a regular interval still
it is complete. Thus in Continuous Audit, accounting and auditing work is done
almost side by side. Continuous Audit, however, dose not mean the audit work goes
on for 365 days for the year. The auditor may make periodic visits, say, every two or
three months during the year. At each visit, the work would be taken up from where it
was left in the earlier visit.
Advantages of continuous audit:
Continuous Audit has following advantages –
1. Quick preparation of Final Accounts: Since the routine audit is done
continuously, the Final Accounts can be prepared immediately after the year
end.
2. Early Dividends to Shareholders: The shareholders would be happy as they
received dividends soon after the end of financial year. The company can
prepare interim accounts and pay even interim dividends to the shareholders.
3. Up-to-date Accounts for banks/investors: The up-to-date final account are
useful to banks and investors for taking decision regarding loans and
investment.
4. Check on Employees: Since the auditor visit regularly throughout the year it
acts as a check on the employee to keep the accounts ready and up-to-date.
5. Prevents Errors and Frauds: Constant checking by the auditors helps to detect
and even prevent errors and fraud.
6. Familiarity with Client’s Business: Since the auditor spends more time at
client’s place, he becomes familiar with all the aspects of client’s business.
This is a great help in audit work.
7. Thorough Audit: the auditor has more time at his disposal to do a thorough
checking of all transactions. This reduces the risk of missing any material
items.
8. Utilisation of audit staff: Audit staff can be kept busy throughout the year. How
did work can be evenly distributed to avoid overwork after year end.
Disadvantages of continuous audit:
1. Expensive: Since the auditor spends more time on the audit work, the audit fees
are much more. Continuous audit is thus expensive.
2. Audit in Instalments: Since the audit work is done at intervals and not at one
go, audit may be inefficient. The queries during the last visit may remain
unsolved. It is difficult at each visit to take up the work precisely at the stage of
last visit.
3. Errors and Frauds in Books Already Checked: If an employee changes some
figures in the books already checked by the auditor during his earlier visit, it
would be difficult to detect such errors and frauds subsequently.
4. Disrupts Accounts Work: Frequent visits by audit staff disrupts the work of
account staff. The day-to-day accounting may suffer if the accountants have to
attend to audit work every now and then.
5. A new reliance on Auditors: The client and the accountant may become unduly
dependent upon the auditor. Continuous audit may become a routine affair of
mere Vouch and Post Audit.
Q2. Write distinguish between Accounting and Auditing.
ACCOUNTING AUDITING
MEANING
Accounting is writing books of accounts Auditing is examination of accounts to
and preparing final accounts. report whether they are true and fair.
OBJECTIVE
Object is to prepare Balance Sheet to Object is to examine and report if
show financial position as at the year balance sheet shows true and fair
end and Profit and Loss A/c to show financial position and if profit and loss
profit/loss for year only. A/c shows crew and fair amount of
profit/loss.
SCOPE
Accounting is limited to books of Auditing is not limited to only books of
account only. accounts.
DONE BY
Accounting is done by employees who Audit is done by an independent expert
need not have any special qualification. who must be practising chartered
accountant.
RESPONSIBILITY
Accountant is employed by and is Auditor is appointed by
responsible to management. owner/shareholders and reports to them.
BEGINNING AND END
Accounting begins with vouchers and Auditing begins where accounting ends
 books of original entry and ends with i.e. with final accounts. Audit is
preparation of final account. complete when auditor submits his audit
report.
NATURE OF WORK
Accountant records, post and summarise Auditor analyses past transactions.
current transactions. Accounts are Auditing is thus analytical. Once
checked by auditor. audited, accounts are not re-audited.

Q3. Explain concept of Materiality.

Ans. 1. Standard on accounting SA320 (Materiality in Planning and Performing
an audit) deals with the concept of materiality.
2. The auditor should consider materiality when planning as well as conducting
an audit.
3. Information is material if it’s misstatement (i.e., omission or wrong
statement) could influence the economic decision of user.
4. Material matters are those matters which, either individually or in the
aggregate, are relatively important for true and fair presentation of financial
information in accordance with recognised accounting policies and practises.
5. The basic factor on which materiality depends is the size and nature of the
item.
6. Materiality provides a quantitative cut-off-point.
7. The assessment of what is material is basically a matter of professional
judgement.