Legal Definitions - transactional audit

A transactional audit is a detailed examination of specific financial or operational activities within an organization. Unlike a broad audit that might review overall financial statements, a transactional audit focuses on individual transactions or a defined series of transactions to verify their accuracy, legitimacy, and compliance with established rules, policies, or laws.

Here are some examples to illustrate this concept:

• Imagine a large retail chain that suspects a particular store manager is approving excessive discounts, leading to revenue loss. The company's internal audit department might conduct a transactional audit. They would specifically review every discount applied at that manager's store over a three-month period, examining each individual transaction to see if it followed company policy regarding discount authorization, reason codes, and approval limits. This focused review helps pinpoint specific instances of non-compliance rather than just looking at the store's overall profitability.

• Consider a government agency that provides funding to a research institution for a specific scientific project. To ensure the public funds are being used appropriately, the agency might initiate a transactional audit. Auditors would meticulously examine every invoice, receipt, and payroll record submitted by the research institution that is linked to that particular project. Their goal is to verify that each expenditure directly relates to the approved project activities and adheres to the grant's strict financial guidelines, rather than reviewing the institution's entire budget.

• A bank might perform a transactional audit on a series of loan applications processed by a specific loan officer if there are concerns about potential fraud or non-compliance with lending regulations. The audit would involve reviewing each individual loan application, supporting documents, credit checks, and approval records to ensure that every step of the process for each loan met the bank's internal policies and all relevant legal requirements. This granular review helps identify patterns or specific instances of improper loan origination.