When Does a Singapore Company Need a Special Purpose Audit?

13th Aug

kohlimaudit

Introduction

While most business owners in Singapore are familiar with statutory audits, special purpose audits are less commonly discussed but can be equally critical. Unlike statutory audits, which focus on the overall accuracy of financial statements, a special purpose audit zeroes in on specific areas, transactions, or requirements.

Knowing when your company needs one can help you meet regulatory obligations, satisfy investor or lender requirements, and maintain credibility with stakeholders. This guide will explore the situations that trigger a special purpose audit, its benefits, and how to prepare for one.

1. What Is a Special Purpose Audit?

A special purpose audit is an independent examination of certain financial information, operations, or compliance matters, usually performed to meet a specific request or requirement.

Key features:

Scope is targeted — focuses on a specific area rather than the full set of financial statements.
Initiated for a reason — often driven by contractual, regulatory, or stakeholder needs.
Customised approach — tailored to the subject matter being audited.

2. Difference Between Statutory and Special Purpose Audits

Statutory Audit: Required by law for companies above the small company threshold; covers the entire set of financial statements.
Special Purpose Audit: Not always required by law; often initiated for specific compliance, funding, or operational reasons.

3. Common Types of Special Purpose Audits in Singapore

Special purpose audits can cover a wide range of areas, including:

Grant Audit – To confirm proper use of government or agency funding.
Turnover Audit – To verify sales figures for rental agreements or profit-sharing arrangements.
Compliance Audit – To ensure adherence to regulations or internal policies.
Due Diligence Audit – Often used in mergers and acquisitions.
Project Audit – To review the financial performance of a specific project.

4. When Does a Company Need a Special Purpose Audit?

There are several key situations where a special purpose audit becomes necessary.

A. When Applying for or Receiving Government Grants

Many government grants (e.g., from Enterprise Singapore) require companies to:

Submit audited statements on how funds were used.
Prove compliance with grant terms.
Provide assurance to the funding body.

Failing to conduct the required audit could result in grant clawbacks.

B. When Required by Contracts or Lease Agreements

Some landlords, especially in shopping malls, require gross turnover (GTO) audits from tenants to:

Verify declared sales.
Ensure correct rental calculation.
Prevent underreporting of turnover.

C. When Preparing for Mergers, Acquisitions, or Investments

Investors and acquirers often request special audits to:

Verify specific financial data.
Assess the health of a project or division.
Confirm there are no hidden liabilities.

D. When Required by Regulatory Bodies

Certain industries in Singapore — such as financial services, healthcare, and charities — may require targeted audits to meet licensing or compliance conditions.

E. When Verifying Use of Project Funds

If your company manages large-scale projects or development work, funders may request an audit to:

Ensure budget alignment.
Check that funds were spent according to agreement.
Review cost efficiency.

F. When There Are Suspicions of Irregularities

If stakeholders suspect fraud or mismanagement in a specific area, a special purpose audit can:

Investigate the suspected transactions.
Identify weaknesses in controls.
Provide evidence for legal action if necessary.

5. Strategic Reasons to Conduct a Special Purpose Audit (Even if Not Required)

While many special purpose audits are mandated, some companies choose to do them voluntarily to:

Build investor trust during negotiations.
Strengthen governance before IPO listing.
Demonstrate transparency in joint ventures.
Validate performance before contract renewals.

6. The Benefits of a Timely Special Purpose Audit

Conducting a special purpose audit at the right time can:

Prevent contractual disputes.
Speed up investment or acquisition processes.
Reduce the risk of penalties from regulators.
Strengthen your bargaining position in negotiations.
Provide stakeholders with confidence in your operations.

7. The Process of a Special Purpose Audit

Although the scope is narrower, the methodology is still rigorous.

Defining the Scope
- Clearly identify the area to be reviewed (e.g., GTO, compliance, grant usage).
- Agree on specific objectives with stakeholders.
Planning the Audit
- Identify key risks and areas of focus.
- Gather preliminary documents.
Fieldwork
- Review relevant transactions.
- Test controls and verify data.
- Conduct interviews with relevant staff.
Reporting
- Present findings with recommendations.
- Provide an audit opinion (if applicable).
Follow-Up
- Assist management in addressing issues found.

8. Examples of Special Purpose Audit Scenarios

Example 1: GTO Audit for Retail Lease
A fashion retailer in a Singapore shopping mall must submit an annual GTO audit to verify sales figures used in calculating rent.

Example 2: Grant Audit for Funding Body
A manufacturing company that received an Enterprise Development Grant must engage auditors to confirm that all funds were spent according to the grant agreement.

Example 3: Due Diligence Audit for Investor
A technology startup entering Series B fundraising undergoes a special audit focusing on intellectual property valuation and project revenue recognition.

9. How to Prepare for a Special Purpose Audit

Clarify requirements early — understand what the audit must cover.
Maintain detailed records — especially for transactions within the scope.
Assign a point of contact — to coordinate between your company and auditors.
Ensure compliance with agreements — review contracts and grant terms before the audit begins.

10. How Koh & Lim Audit PAC Supports Special Purpose Audits

At Koh & Lim Audit PAC, we provide:

Expertise in all major types of special purpose audits (grant, GTO, due diligence, compliance).
Flexible scheduling to meet urgent deadlines.
Clear, concise reports tailored for your audience — whether it’s regulators, landlords, or investors.
Practical recommendations to strengthen controls and compliance.

Our goal is to not only help you meet the immediate requirement but also add value to your long-term business strategy.

Conclusion

Special purpose audits in Singapore are not just a regulatory or contractual formality — they are a strategic tool for transparency, compliance, and stakeholder trust.

Your company may need one when:

Applying for or receiving government grants.
Complying with lease or contract terms.
Preparing for investments or acquisitions.
Meeting industry-specific regulations.
Investigating suspected irregularities.

By conducting a special purpose audit at the right time, you can avoid disputes, enhance credibility, and maintain strong business relationships.

Call to Action
If you’re unsure whether your company requires a special purpose audit, contact Koh & Lim Audit PAC for expert guidance. We’ll help you determine the right scope, timing, and approach for your needs.
📞 +65 98638665
📧 Tommyksh@kohlimaudit.sg
🌐 https://kohlimaudit.sg/

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