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CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing

Rao Pharma Ltd's auditor has pointed out that while a continuous audit allows early detection of errors, it also has a recognised disadvantage. Which of the following is a recognised disadvantage of continuous audit?

A recognised disadvantage of continuous audit is that entries already checked may be altered by the client's staff after the auditor's visit. Auditors guard against this with tick marks and notes of balances. The other options describe a final audit or are the opposite of how continuous audit works.

  1. AEntries already checked may be altered by the client's staff after the auditor's visitCorrect
  2. BThe audit cannot be started until the books are closed for the year
  3. CIt prevents the auditor from checking any transaction before the year end
  4. DIt cannot be used for companies with large volumes of transactions

Explanation

A known drawback is that checked figures may be tampered with after the auditor leaves, unless the auditor takes safeguards such as initialling or tick marks and keeping notes of balances. The second statement describes a final audit. The third is the opposite of continuous audit. Continuous audit actually suits large organisations.

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