An interim audit is an audit strategy or an audit approach that the auditors will perform audit testing on the interim financial statements. It is part of the audit strategy that helps the auditor to reduce some audit works during the final audit or annual audit. In some occasions, the auditors may perform an interim audit due to the regulatory requirement. It can also be due to the request from their customers to reduce their workload at year-end. This is because some financial institutions demand the companies to engage an independent audit firm in Johor Bahru to review their financial statements every quarter. Then, the companies should submit the interim financial statements to the local authorities or regulators.
Usually, the auditors will perform the interim audit about a few months before the final audit or before the year-end comes. In some cases, the auditors will conduct an interim audit on the financial statements for six or nine months. When it is time for the final audit, they will only conduct the audit on the remaining financial statements.
There is no significant difference between the audit procedures of the final audit and interim audit. However, note that on interim audit, the auditors usually will not issue their opinion (Also see Types of Audit Opinion). They will only issue audit opinion at final audit, and they will give a negative assurance opinion if their customer wants them to issue an opinion.
Advantages of Interim Audit
The interim audit enables the auditor to understand the business of the clients better as they can know more about the nature of the accounting records (for instance, the component of the capital account) and the related risks of the company. When they have a better understanding of these things, they will know what and where are the risks that they need to be more focus on when they are designing audit procedures. Thus, auditors will put in more effort in those areas that have high risks instead of the low-risk areas. As a result, the efficiency of the audit will be higher.
The interim audit will reduce audit works of the auditor during the final audit as it requires the auditors to conduct testing on the items in the income statement, such as checking the double entries (Also see Advantages of double entry accounting). Typically, the auditors will not perform these testing again when they perform the final audit in addition to the items in the balance sheet as some item’s fair value is only able to be determined at the end of the reporting period. Thus, auditors have less work to do in the year-end audit. For instance, the auditors can verify the operating expenses for the first nine months when they conduct an interim audit, whereas, for the rest, they will do it at the final audit. Besides, performing an interim audit will increase audit revenue of an audit firm. Such a condition will occur when there is a request from the customer to ask the auditors for an interim audit opinion.
Typically, auditors would issue a negative assurance opinion on their customer’s interim financial statements. Customers may request for an interim audit report from the auditors due to the requirement from the bank when they are applying for bank loans, the requirement of the board of directors for meetings, or the requirement of the local authorities. When the client asks the auditors to issue the interim audit report, the auditors stand a chance of earning additional fees.