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Forensic Audits

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A forensic audit is an examination and evaluation of a firm’s or individual’s financial records to utilize it as evidence in the court of law or legal suits. It serves as a backing to prove a fraud in the business in an apparent risk prone environment. Forensic audits have requirement of the expertise of accounting and auditing procedures along with expert knowledge about the legal framework of such an audit. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial allegation to make the financial records more reliable.

Forensic audits cover a wide range of investigative activities to reduce the corporate fraud. Forensic audits could have those situations also that do not involve financial fraud, namely disputes related to bankruptcy filings, business closures, and divorces. It includes detailed planning of task aimed at documenting, determining and calculative analysis. 

Skills for Forensic Audit

  • Knowledge of entity’s business and legal environment;
  • Awareness of computer assisted audit procedure;
  • Innovative approach and skeptic of routine and practices;
  • Obvious should be distrusted; and
  • Think differently and develop an open mind to investigate loopholes.

Why to conduct a Forensic Audit
In the selection of timely detection, prevention and regulation over corporate fraud and favor to due investigation, Forensic Audit has an imperative role in assisting the corporates for sustaining efficiency and excellence. On the larger parameters, Forensic audit as combined effort of both accounting and investigation is serving all the five E’s of good governance and make the corporates to cultivate and ripen on the parameters of being ‘Effective, Efficient, Easy, Empower, and Equity’. Forensic audit investigations can discover, or confirm, various types of illegal activities. Usually, a forensic audit is chosen, instead of a regular audit, if there’s a chance that the evidence collected would be used in court.

Some are the reasons where Forensic Audit is necessary to conduct

  • When a fraudster uses his or her influence for personal gains to the detriment of the company. It is termed as conflict of Interest. Example – If Manager is purchasing items from their relative to and invoicing it inaccurate;
  • Offering or accepting money or any article to get things done and influencing a situation in one’s favour we termed as Bribery; and
  • An address or communication emphatically urging someone to do something is termed as

Sources of Forensic Audit
The detailed position of Laws and Regulations addressing Corporate Fraud and also aids in achieving forensic audit would be discussed 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 Forensic Audit
The process of conducting forensic audit is similar to other audit. These are like planning, collecting audit evidences, writing a report, with an additional step of a potential court appearance.

Planning and Investigation of facts
At 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 the fraud was concealed etc.

Collecting Evidences
The evidences 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.

Following points should consider while collecting evidences

  • Any fraud or negligence took place?
  • Is the effect material?
  • Who are responsible people and how much can be recovered.

At the end of the audit, a written report about the fraud presented to the client so that they can proceed to file a legal case if they so desire.

At AJSH, we perform audit and assurance services for large and mid-size corporates in order to assist them in complying with their regulatory requirements. If you have any questions or wish to know more about forensic audits, kindly contact us.


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