Final audit is one, which is taken up at the close of the financial period when all the accounts have been balanced and a trading and profit and loss accounts and the balance sheet have been prepared. In such a case the auditor visits his client only once in a year and checks the accounts in one visit till he is not in a position to cover the accounts pertaining to the whole of the period.
Features of final audit
- It is started at the end of the trading or financial period.
- It may be started before the end of financial period, so that audit may be completed soon after the close of the year.
- Audit is completed in one continuous visit.
- It is economical
Application of final audit
- Where the business is small.
- Where the volume of transactions is not too enormous.
- Where owner themselves look after their business satisfactorily.
- Where the internal control system is effective.
- Where the audited accounts are required after the close financial year.
- Where the audited monthly reports are not required.
- There is gap in the audit work
Advantages of final audit
- Convenient
The client’s staff is not put to any inconvenience because auditor comes only once a year.
- Economical
This kind of audit is less expensive as compared to others therefore is the only form of audit available to small business houses.
- Collision not possible
The possibility of collision between the auditor and the client’s staff is much lessor. Because audit staff came into the business for less time period.
- Lessor time
The auditor gets full facts and materials for the conduct of his work and therefore, he can plan to finish his work in lessor time.
- Work planning
The auditor knows the total quantum of work involved and can plan his work accordingly.
- No loss in continuity
There is no danger of auditor’s staff losing continuity of their work because the audit works once begun is continuously performed until it is finished.
- Strong internal control
Final audit is effective only when there is strong internal control. Therefore auditor critically evaluate it mark the loopholes and remedial measures are taken by the management.
- Fulfillment of statutory requirement
This type of audit is compulsory for joint stock companies according to Company Ordinance 1984, every public limited company must got their accounts be audited by independent auditor. So conducting of final audit means fulfilling legal requirement.
- Quick completion of audit work
In final audit the audit work can be completed quickly within a reasonable time, and enable the management to publish and circulate the audited accounts for the purpose of annual meeting.
10 Beneficial for seasonal industries
The final audit is beneficial for seasonal industries because other, types of audits are not applicable. In seasonal industries the business activities are significant in off seasons.
- No chances of outstanding queries
Under the final audit there are very little chances of queries remains outstanding. Auditor makes sure before writing the report that each and every aspect of the audit requirement is covered and nothing is left outstanding.
- Protect the shareholders interest
The management manipulates the financial results for their own interest. The final audit serves by giving the reliable financial information and protects the interest of the shareholders in the business.
- Better performance
The weaknesses of business are easily known to auditor under final audit and the elimination of these weaknesses the performance of accounting and management staff is improves.
- Less danger of alteration
Under this kind of audit there is lesser chance of alteration in record either fraudulently or unintentionally after the audit work is completed.
- Moral check
The audit work creates psychological impact on accounting staff and they become more careful in the performance of their duties and keep their work up-to-date.
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Disadvantages of final audit
- Late rectification of errors
Rectification of error becomes very difficult as long gap to time occurs between its detection and rectification. It is also possible that during this period the employees of the client might enjoy undue advantage.
- No detailed checking
In final audit it is not possible for the auditor to go for detailed checking thus leaving greater chance for errors and frauds to be left undetected.
- Planned frauds undetected
Some frauds are committed with due planing might go undetected. Because the auditor comes for a short while once in a year, he cannot smell the intentions of the employees nor can be doubt their integrity.
- Delayed preparation of final accounts
In final audit auditing is done at the close of the financial year there is no hurry in the preparation of final accounts.
- Delayed audited accounts
Final audit is unsuitable for big business undertakings, as the audited accounts are likely to be delayed beyond a reasonable period.
- Lesser moral check
Only one visit of auditor leads to lesser moral check on the employees of the client in the case of final audit as compared to continuous audit.
- Post mortem
Some people say final audit has only historical importance rather than its use and consider it only as a post mortem of accounts.
- Not applicable for big concerns
Final audit is not applicable in big concern because the quantum of work is large and it need more time to examine the accounts in detail which might be delay the annual general meeting therefore it is not beneficial for them.
- Chances of misrepresentation
Under the final audit, the auditor usually applies the test base method to evaluate audit evidence. If the audit staff is not fully trained, the sampling error may spoil the quality of audit result, which leads to misrepresentation.
- Weak internal control system
The final audit is not suitable for those enterprises where the system of internal control is weak. Due to lesser time, examine each and every transaction of the business.
- Interim dividend:
If the management intend to declare the interim dividend it is not possible under final audit. Interim account cannot be prepared during the financial period because auditor will come after the close of accounting year.
- Lack of proper attention
Due to lesser time, the auditor cannot give proper attention to audit work. He has no contract with business matter therefore he is unable to advise his client on any matter.
- Delay in submitting the audited report
The audit work is started after the close of the year. And report will submit after work which may cause delay in submitting the audited report.
