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Forensic Audit


A forensic audit inspects and evaluates a firm’s or an individual’s financial records to utilize them as proof in the court of law or and legal suits. It serves as a backing to prove fraud in the business in an apparent risk-prone environment. Forensic audits need the expertise of accounting and auditing procedures and expert knowledge about the legal framework of such an audit. A forensic audit can be directed to prosecute a party for fraud, embezzlement, or other financial allegations to make the financial records more reliable. Forensic auditing is a forte in the accounting industry, and most major accounting firms have a department of forensic auditing. 

Forensic audits cover a wide variety of investigative activities to decrease corporate fraud. For example, the auditor may be called in during the procedure of a forensic audit to serve as an expert witness during trial proceedings. Forensic audits could also have circumstances that do not require financial fraud, namely disputes related to bankruptcy filings, business closures and divorces. It includes detailed planning of tasks aimed at documenting, determining and calculative analysis.

Types of forensic auditing
Various types of forensic auditing can occur, and they are typically grouped by the types of legal proceedings they fall under. Below are some of the most typical examples:

  • Financial theft (customers, employees or outsiders)
  • Securities fraud
  • Bankruptcy
  • Defaulting on debt
  • Economic damages (various types of lawsuits to recover damages)
  • M&A related lawsuits
  • Tax evasion or fraud
  • Corporate valuation disputes
  • Professional negligence claims
  • Money laundering
  • Privacy information
  • Divorce proceedings

Why conduct a forensic audit
In selecting timely detection, prevention and regulation over corporate fraud and favour to the due investigation, the forensic audit has an imperative role in assisting the corporates for sustaining efficiency and excellence. The forensic audit procedure is similar to a traditional financial audit- planning, gathering evidence and writing a report- with the additional step of a possible appearance in court.

Forensic audit as a combined effort of both accounting and investigation serves all the five E’s of good governance on the more extensive parameters. It makes the corporates cultivate and ripen on being practical, efficient, accessible, empowered, and equitable. Forensic audit investigations can discover or confirm multiple types of illegal tasks. Generally, a forensic audit is selected instead of a regular audit if there’s a possibility that the proof collected would be utilized in court.

Grounds where forensic audit is obligatory to conduct:
Following are the grounds where forensic audit is mandatory to achieve:

  • When a fraudster uses their influence for personal gains to the detriment of the company. It is termed a conflict of interest. Example – If the manager is purchasing items from their relative to and invoicing, it is imprecise.
  • Offering or acquiring money or any article to get things done and governing a situation in one’s commendation is bribery.
  • An address or communication emphatically pursuing someone to do something is termed extortion

Sources of the forensic audit
The precise position of laws and regulations addressing corporate fraud and also aids in achieving forensic audit would be considered under the following heads:

  • Indian laws
  • Information technology and business laws
  • International laws
  • UK bribery act
  • US foreign corrupt practices act
  • ICSI anti-bribery code.

How to conduct a forensic audit
The process of conducting a forensic audit is similar to other audits. A forensic audit comprises of the following steps:

  • Planning and investigation of facts
    At the planning stage, the forensic auditor and entire team will plan their investigation to achieve objectives, such as identifying what fraud, determining the period during which the fraud occurred, discovering how it was concealed etc.
  • Collecting evidence
    The evidence collected during the audit should be adequate to prove the fraud. Forensic auditors must take precautions to ensure that documents and other evidence collected are not damaged or altered by anyone intentionally or unintentionally.

The following points should be considered while collecting evidence:

    • Any fraud or negligence took place
    • Is the effect material
    • Who are responsible people, and how much can be recovered
  • Reporting
    At the end of the audit, a written report about the fraud is presented to the client to proceed to file a legal case if they so desire.
  • Court proceedings
    During court proceedings, the forensic investigator must clarify the evidence collected and how the team found the suspect(s).

At AJSH, we assist our clients in dealing with forensic/ risk audits, internal audits, stock audits, tax & GST audits, government audits, various corporate matters (Company incorporations, statutory audits, ROC Compliance, company winding-up) in India by providing them adequate support and guidance from our end. If you have any questions or wish to know more about using the work of an auditor, kindly contact us.



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