A Special Audit can be defined as a tightly defined type of audit that is conducted in order to probe into a specific area of the organization’s activities.
As a matter of fact, it can be seen that this type of audit is mainly initiated by a third party, like a government agency or the tax authority.
However, it can also be authorized by any other relevant entity, including any internal authorities that might be in a position to do so.
Examples of special audits include Compensation audits, control audits, cost audits, fraud audits and royalty audits.
The Need for A Special Audit
Special Audits are mostly needed when some abnormal behavior is suspected within the organization.
Mostly, they are called for when it is suspected that the laws and regulations have been overlooked pertaining to finances, or financial management within the organization. However, they are not only restricted to cases pertaining to fraud.
They can also be conducted when there are other institutional violations that might include pertaining to duties, authorizations, internal control procedures or responsibilities of the Senior Management.
In the same manner, Special Audits can also be related to corporate reorganization or bankruptcy.
Scope of Special Audit
As mentioned earlier on, it can be seen that a special audit is conducted out of routine, with a specific or a special purpose.
However, these special purposes are quite varied in their nature, and the overall outcomes based on those special audits.
- Compliance Audit – This is mainly conducted when there is a need to examine the policies and procedures to check if they follow internal or regulatory standards.
- Construction Audit – This analyzes the costs that occur for a given construction project. In the same manner, this also tracks down the actual amount that is paid to contractors, suppliers, and other reimbursement that takes place in this regard.
- Information Systems Audit. Information System Audit is mainly conducted when there is a need to review the overall controls present in software development. Additionally, it also involves a review of controls regarding software development, data processing and the overall access to computer systems.
- Investigative Audit. Investigative Audits take place when there is a need to find details of a specific event or an incident within the company, that was suspicious.
- Tax Audit. This Audit is mainly initiated to analyze the overall tax returns that are submitted by an individual or business entity. The main rationale is to see if the paid tax is actually valid.
Therefore, it can be seen that Special Audits are mainly conducted in order to investigate a special cause or to justify something that is not normal within the organization.
The main reasoning behind such an audit is to ensure that the overall functioning within the organization is normal, and there are no productivity losses involved.
This greatly helps them to be able to identify relevant areas of improvement, where they are able to trace weak links and ensure that they are corrected for optimal performance within the organization.