What is the difference between Audit and Forensic Audit ?

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Even, An audit means a formal examination of an organization’s or an individual’s accounts or financial situation. Public accounting firm conduct an audit which provides comfort  to an organization’s financial statement. Let us understand the distinction between a forensic audit and an audit.

What is Qualification of Forensic Auditors ?

For becoming a forensic auditor one must opt for the CFAP course. On completion of the course, the person will be  able to do the investigation of forensic audit as an forensic auditor

The number of clients asks that what is the main difference between forensic audit and a normal audit. It applies where there is investigation of skills involved to examine, analyze and report on the financial information in a manner which is suitable to the court of law.Besides, the internal and external auditor performs the audit, keeping in mind the certain set of standards that are established.Forensic audit services are usually necessary when the dispute has risen.

The number of forensic activities and ambiguous financial activities has been increasing all over the world day by day. Fraudulent activities exposes business and organizations. Forensic auditing is been now established as dynamic and strategic tool in combating corruption and financial crimes and frauds through the investigation and resolving allegations of fraud and embezzlement that are taking place. The definition of forensic audit keeps on changing in response to the growing needs of corporations. Simply, it means the use of accounting, auditing and investigative skills to assist in the legal matters.

Basics of Audit

However, any organization can examine and evaluate the financial statements by doing the audit.  The objective of audit is that  the intended user shall get the information regarding the financial statements that are true and fair. Even, audit often fail to detect the fraud that is below the materiality level of the auditor’s who are performing the engagement.  “Generally Accepted Auditing Standards” shall follow while doing the audit.

One of the main difference between both of them is that, the audit gives you the guarantee that the financial statements that have been checked are true and fair and are reasonable and forensic audit helps to analyze and investigate a certain set of transaction that if any fraud has been occurred. Audits may establish a materiality threshold whereas the forensic audit does not have any limitation regarding the threshold.

What is Forensic Audit ?

A forensic audit is an examination and evaluation of a firm’s or individual’s financial records to derive evidence that can be used in a court of law or legal proceeding. This could be in relation to a trial or some form of mediation. Certified Fraud Examiner’s conduct most of the forensic audits and forensic examinations.

How to determine if you need forensic audit or normal audit ?

To determine the need for an audit or a forensic audit/examination, consider the following: The organization may need audit if:

  • Ethical Lapses have occurred
  • Requirement of specialized expertise
  • The organization doesn’t follow the existing policies and procedures.
  • Compliance with laws and regulations is significant burden
  • Occurence of IT data breaches

On the other hand, the organization may need forensic audit if:

  • Suspicious Fraud and theft
  • The entity does’nt own the accounts which are under your entity’s name.
  • Reconciliation procedures result in timing difference
  • A whistle blower hotline identified issues such as assets stolen or other defalcations.

Additionally, an auditor plans his work in a way that allows him to focus on gathering sufficient objective, verifiable evidence to support his report.  To obtain the information he needs, an auditor investigates documents and traces documentation.  The auditors confirm certain information such as bank balances or vendor and customer accounts with the appropriate third parties.

Conclusion

However, the forensic auditor and a normal auditor use the same accounting and auditing skills which require special knowledge for conducting different types of engagements that are required to go through as evidence which will give true and fair view. For that reason, it is necessary to put forth to the clients regarding the difference and understanding of how the both audit takes place as well as understanding the client’s needs and providing them with a proper advice of the different types of engagement that takes place.