With the boom of fraud in the global economy, forensic accounting has become an emerging topic of great importance for academic, research as well as the industries. Fraudulent acts and corruption go hand in hand as they have become the loop holes that are gone deeply in the fabric of our society. Forensic Auditing is an essential tool for uncovering or inquiry of financial crimes and direction of justice. As the scope of forensic accounting is increasing, the importance of forensic audit in India is also increasing very rapidly.
Meaning of Forensic Audit
Forensic Audit in India is an analysis and overview of financial records of a company or a person to extract facts, which can be used in the court of law. There may be forensic audit done to prosecute the other party for fraud, embezzlement or other financial crimes that are taking place in the society. Forensic auditing is a specialization within the field of accounting, and most large accounting firms have a forensic auditing department. It requires expertise of accounting and auditing procedures followed by the expert knowledge about the legal framework of such audit.
Forensic Audit can reveal the cases related to the fraud. Forensic audit is now becoming a key weapon in the legal authorities and the moment one smells a scam the brahmastra of “forensic audit is unleashed.
What is the meaning of Forensic Audit?
Forensic accounting is the assistance of finance professionals to settle disputes concerning allegations, fraudulence, suspicion of fraud and misconduct in business. Forensic accounting utilizes accounting, auditing, and investigative skills to conduct an examination into the finances of an individual or business. They may be employed by insurance companies, banks, police forces, government agencies, or public accounting firms.
What is the objective of Forensic Audit ?
Forensic Audit is the method of prevention of fraud and corruption, it puts in the hands of judges and the regulatory authorities information and sufficient evidence to do the analysis and put as an evidence in the judicial process, by determining based on legal text by knowing whether or not it is fraud case or not. Following are the objective of forensic accounting:
- Identification of cases of fraud
- Participate in design and creation of fraud prevention program
- Evaluate the internal control systems
- Investigation and collection of evidence that will be placed in the hands of the judicial authorities
What are the reasons to conduct a Forensic Audit?
Forensic audit investigations can uncover, 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. Below, we cite instances that could necessitate a forensic audit:
In a forensic audit, an auditor would be on the lookout of the following points:
- Conflict of Interest- A conflict of interest occurs where the fraudsters is involved in multiple interest, financial or otherwise. Fraudster uses his/her influence for there personal gains which will cause an adverse effect to the company.
- Bribery- Bribery is defined as offering, giving, receiving or soliciting of any item of value to influence the actions of an official or other person, in charge of any public or legal duty. Offering money to get things done or influence a situation in one’s favor is bribery.
- Extortion- Extortion is a practice of obtaining benefit through coercion. Extortion is likely to constitute the criminal offence. Robbery is the simplest and the most common form of extortion.
Asset misappropriation fraud is the fraud involving theft or misuse of company’s asset. It is the most common type of fraud although it is not expensive as the less frequent but much more costly financial statement fraud. It occurs in every type of organization from nonprofit to governmental to for profit and from small to large.
Financial Statement Fraud
Financial Statement Fraud is the deliberate misrepresentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts to deceive the financial statement users.
Forensic Audit Vs Forensic Accounting
Forensic accounting services are usually necessary when there is a dispute or lawsuit already in place. We are often asked by the client’s attorney to assist in the litigation process as an expert. The goal of the forensic accountant is to analyze, report, and assist the court in understanding the financial aspects of the case.
Audits are engagements that examine and evaluate the financial statements of any given organization. An audit’s objective is to provide assurance, to the intended user, that the information contained in those financial statements is a fair and accurate representation of the organization.
One of the main differences between forensic auditing and accounting is that, forensic audit is designed to provide assurance that certain part of financial statements are reasonable. On the other hand, forensic accounting is designed to analyze particular set of transaction.
Forensic Accounting assignments are complex in nature. Forensic Accounting answers the questions such as who perpetuated the fraud? what was the modus operandi regarding the same?, what were the fraud losses?. Forensic auditors answer the questions such as motives of the businesses behind the fraud.
In India, Forensic auditors witnessed boom, when the bankers started scouting for the experts to ascertain willful default in the borrower’s account.
Forensic accounting should not become a matter of specialization and expertise. It should be a part of the syllabus as undergraduate as well as post graduate level across the country. This will help the corporate and the government to keep a check on the financial crimes that are taking place.