Define: Transactional Audit

A transactional audit is a thorough examination of financial transactions and records to ensure compliance with laws, regulations, and internal policies. It aims to identify any irregularities, errors, or fraudulent activities in financial transactions.

A transactional audit is important as it helps organisations maintain financial integrity, detect and prevent fraud, ensure compliance with legal and regulatory requirements, and identify areas for improvement in financial processes.

Transactional audits are typically conducted by internal auditors within an organisation or by external auditors hired specifically for this purpose. External auditors may be independent accounting firms or consultants with expertise in auditing financial transactions.

The key steps in a transactional audit include planning the audit, gathering and analyzing financial data, testing the accuracy and completeness of transactions, evaluating internal controls, identifying any irregularities or errors, and reporting the findings to management.

Transactional audits can cover a wide range of financial transactions, including sales and purchases, payroll, expenses, inventory management, cash handling, and financial reporting. The specific transactions audited depend on the nature of the organisation’s operations and the areas of potential risk.

Some common red flags that may indicate fraudulent transactions include unexplained or unauthorized transactions, excessive or unusual payments, duplicate invoices or payments, missing or altered documents, and inconsistent or suspicious financial patterns.

Organizations can prevent fraudulent transactions by implementing strong internal controls, segregating duties, conducting regular transactional audits, promoting a culture of ethics and integrity, and providing training to employees on fraud prevention and detection.

Failing a transactional audit can have serious consequences for organisations, including financial losses, reputational damage, legal penalties, regulatory sanctions, and loss of investor or stakeholder confidence. It may also lead to the need for remedial actions and increased scrutiny from regulatory authorities.

Yes, transactional audit findings can be used as evidence in legal proceedings, especially in cases involving financial fraud or misconduct. The audit report, along with supporting documentation and testimonies from auditors, can help establish the facts and support legal claims or defences.

The frequency of transactional audits depends on various factors, including the size and complexity of the organisation, industry regulations, and the level of risk involved. Generally, organisations should conduct transactional audits at least annually, but more frequent audits may be necessary in high-risk areas or during periods of significant organisational change.