An interim audit is part of audit work or audit strategy where audit testing is performed on interim financial statements. This is part of the audit strategy when the auditor wants to reduce audit works at the annual audit or final audit testing.
Sometimes an interim audit is also performed as the result of the request from the client so that they could reduce their workload at the year-end, or it is the regulatory requirement.
Some financial institutions require their financial statements to be reviewed every quarter by an independent audit firm and then submit those interim financial statements to a local regulator or authority. Normally, auditors perform interim audits two or three months before the year-end comes and audits.
Sometimes, the auditor performs the interim audit on the six months or nine months of financial statements. And when the final audit comes, they perform only the remaining period of financial statements.
The audit procedures of interim audit and final audit are not much different, but the audit is not normally issued the opinion on the interim audit.
The audit opinion will be issued at the final audit. And if the client wants the auditor to issue the opinion, the auditor will provide a negative assurance opinion.
Here is the benefit of an interim audit:
- It let the auditor get a better understanding of the client’s business, related risks, and the nature of accounting records. As long as auditors know better about these things, auditors will be able to figure out what and where are the key risks that they should pay more attention to when they design audit procedures. In other words, the effort will be paid more to the high risks areas rather than the low-risk areas which leads to better audit efficiency.
- Reduce Audit work. Interim audit works required the auditor to perform testing. Those testing could be done on income statement items or balance sheet items. Those testing during the interim audit normally does not perform again in the final audit. These testing will help auditors to reduce their work when the year-end audit comes. For example, operating expenses could be verified during the interim audit for the first 9 months and the rest will be done at the year-end audit.
- Increase audit revenue. This happens when there is a request from the client asking auditors to issue an interim audit opinion. Normally, the auditor will issue a negative audit opinion on the interim financial statements. There are many reasons why the client wants the auditor to issue an interim audit report. For example, there is a request from the bank when the client obtains a bank loan. There is a requirement of local authorities like the security market. Or sometimes it is the requirement from the client board of directors for their meeting. As long as there is a request from the client to issue an interim audit report, there is an additional fee earned for auditors.
- Audit clients are sometimes required to publish their interim financial statements. Before doing so, they normally required auditors to perform the interim audit on those parts of financial statements. Auditors, in this case, will issue a negative opinion on the interim financial statements.
The audit procedures that auditors perform for the interim auditors are normally testing the opening balance of the balance sheet items so that they will not have a lot of work or procedures to be performed in the final audit.
They will perform an understanding of the client’s business environment, business activities, policies, and procedures to assess the risks of material misstatements that are likely to happen to the financial statements.
Auditors do not normally perform testing on the balance sheet items rather than the testing of the opening balance. This is because, in the interim financial statements, the balance in the balance sheet will not be the same as the balance at the period end or year-end to be audited.
However, auditors will test the income statement items as much as possible so that most of the work will be done during the interim audit. For example, they will test most sales and operating expenses transactions.
Written by Sinra