Interim Audit Meaning Procedures Functions Benefits

Interim Audit Meaning

Objectives of Interim Audit

It is conducted to determine the profit of the period and determine whether the company could pay an interim dividend or not, as interim dividend payment by the company results in the value addition of the business in the mind of investors and shareholders.To identify and early detection of fraud and improve the employees’ efficiency 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 company’s share.The organization whose interim audit is conducted is considered more reliable than 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 the business enterprise and the voluminous transactions; some of the essential outlay points are as follows:

Analyze the level of organization.Analyze the decision taken hierarchy of an organization.Analyze the organization’s work and 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 organization’s 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.
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 the auditor gathers while conducting the audit.If they are materially misstated, consider the effect of material misstatement on the business, then issue a qualified auditQualified AuditThe company’s auditor issues a qualified opinion in the audit report if it is found that the company’s financial statements are presented fairly, but with exceptions in specific areas. It is one level below a Unqualified Opinion (i.e. Clean Opinion) and is given when the Auditor believes the financial statement has not been prepared in accordance with the rules laid down under the provisions of GAAP or IFRS.read more report or vice versa.

Applications

The concept is used to determine the amount of dividend that 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 administration and the external auditor External Audit is defined as the audit of the financial records of the company in which independent auditors perform the task of examining validity of financial records of the company carefully in order to find out if there is any misstatement in the records due to fraud, error or embezzlement and then reporting the same to the stakeholders of the company.read morecould rely upon it.

Benefits

It helps increase the efficiency and effectiveness of the management functioning concerning the accounting and financial part of the business.It is less expensive than 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 aware that some other person checks their work, the efficiency and correctness in employees’ work tend to rise.As the books of accounts are finalized on the date by the professional possessing the 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 being 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 data manipulation rises to hide the things from being reported or detected.Sometimes due to errors in determining profits accurately to shareholders, the company’s funds may arbitrarily decrease.

Conclusion

‘Interim Audit’ is how the management itself checks whether they are complying with the regulatory requirements or not. This audit is the preliminary step to gathering information on the business conduct and considers 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 at the request of the business entrepreneur or sometimes on account of the ease 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 and lay upon some entities to conduct an interim audit at the end of every quarter.