Forensic Audit

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.

Forensic audit investigations are made for several reasons, including the following:

Corruption

In a forensic audit, while investigating fraud, an auditor would look out for:

Bribery: As the name suggests, offering money to get things done or influence a situation in one’s favor is bribery. For example, Telemith bribed an employee of Technosmith company to provide certain data to aid Telesmith in preparing a tender offer to Technosmith.

Conflicts of interest: When a fraudster uses his/her influence for personal gains detrimental to the company. For example, if a manager allows and approves inaccurate expenses of an employee with whom he has personal relations. Even though the manager did not directly financially benefit from this approval, he is deemed likely to receive personal benefits after making such inappropriate approvals.

Extortion: If Technosmith demands money in order to award a contract to Telemith, then that would amount to extortion.

Forensic Audit Procedures

Forensic Auditors go much beyond the financial reporting standards and internal control lapses. They try to understand the intent. Fraudulent intent is very important to prove the fraud in the courts of laws. There are four primary stages of any forensic accounting engagement

• Plan the investigation: It is necessary to understand the exact question of the client. The forensic auditor plans his investigation to achieve audit objectives. Objectives could be assessing exact number of frauds, executives involved in manipulating company financials etc.
• Collecting Evidence: Forensic Auditors collect the accurate evidence of financial manipulations. Evidences should substantiate the financial damage assessments based on accounting records.
• Reporting: Since there is no template, forensic audit reports differ in format but have the same objectives. A good forensic audit report clearly documents the findings of the investigation and refers the evidences collected during the process.
• Court Proceedings: Forensic Auditor are expert witnesses. In the court proceedings he needs to explain the importance of evidences. They should simplify the complex accounting issues.