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Unit 11: Introduction to Special and Efficiency Audit

government may order a special audit conducted on a corporation if there is evidence that its Notes
financial affairs are not being run in accordance with proper accounting practice. Shareholders
of a company may also pass a resolution to have a special audit done on their company if they
feel recent management decisions have put its survival in jeopardy.

Unqualified Opinion

This is a special audit report whose conclusion is that the financial records of the company are in
order. This means that the company management has presented a true reflection of the real
financial transactions without hiding some or exaggerating others. The company’s financial
reporting has complied with the Generally Accepted Accounting Principles (GAAP).

Qualified Opinion

A qualified opinion special audit report is issued when an auditor discovers anomalies in the
financial statements of an organization. Situations that make an auditor give a qualified opinion
report include when a company’s financial statements have failed to include certain transactions
over a certain period or to reflect depreciation in the value of asserts. The auditor gives an
opinion that they should be corrected.

Adverse Opinion

An adverse special audit report is issued when an auditor discovers outright distortions that
make the financial statements of a company unreliable. In most cases, these discrepancies are a
deliberate attempt to conceal the real financial position of the company being audited. An
American company may, for instance, fail to state that it sold its South African subsidiary for $3
million so as to hide the fact that the money was siphoned out of the business after the sale.

Disclaimer of Opinion

A disclaimer of opinion special audit report is issued when an auditor is unable to conduct an
audit of a particular organization. The reasons range from the deliberate failure of the
organization’s management to provide crucial financial information to interference in his audit.
An extreme case of this interference would be an attempt to bribe the auditor so that he can give
a positive report.

Internal Audit

This is a special audit report that is commissioned by a company’s management. It may be
initiated by the company’s executive management or the board of directors. The aim of the
internal audit may be to establish the value of the company or investigate internal fraud.

External Audit

External special audit report is commissioned from outside the company. A multinational
company that owns subsidiaries in foreign countries may commission a special audit of these
subsidiaries so as to determine their viability. A government may also commission a special
audit of one of its ministries to establish how money for a certain project was used. External
audits are usually the most credible though critics have accused audit firms of unethical behaviour.

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