What is Forensic audit?
Forensic audit is investigative examination of financial records of an entity, to examine whether there’s fraud, misappropriation, or other financial misconduct. It is pertinent to note that evidences from forensic audit can be used in legal proceedings.
What triggers forensic audit?
Forensic audit is triggered by suspicions or allegations of financial misconduct or fraud within an organization. Suspicion might have stemmed from:
- Observed cases of unexplained discrepancies,
- Internal control weakness,
- Suspicious transactions (as in, suspicion that arises from amount of transaction or party to the transaction),
- Sudden drastic lifestyle changes of individuals with access to financial resources of the entity,
- Whistleblower complaints,
- Allegations of Illegal activities within the premises
Qualification required to perform Forensic audit:
Forensic audit professional must have expertise in areas like cyber security, accounting and law in order to unearth the evidence and present it before court of law. As of now, there is no mandatory technical qualification required by law, to be a forensic auditor in India. Anyone with relevant skills and experience can conduct a forensic audit, though regulatory bodies and courts might prefer resource with recognised credentials to perform the audit.
Objectives of forensic audit:
Key objectives of forensic audit are:
- Unearthing the financial fraud.
- Quantifying the impact of the fraud committed.
- Tracing the source of illicit transactions.
- Identifying all those who are responsible for those illicit transactions.
- Presenting findings and detailed evidences of findings in (legally) court admissible format.
How does forensic audit differ from general audit?
- Where general audit involves checking accuracy of financial records and verifying compliances, forensic audit involves investigating into fraud cases and gathering legal evidence.
- While General audit involves use of standardized audit techniques, forensic audit involves investigative and forensic tools, to gather concrete proof of financial misconduct.
- Unlike general audit, the results of Forensic audit are often used in legal proceedings.
- The detailed reports of forensic audit are submitted for litigation or prosecution unlike the general audit where the reporting is primarily to shareholders and stakeholders about the financial health of the company.