A forensic audit involves going through a firm’s financial record to get evidence that can be used legally in a court of law or for legal proceedings. Big Industries and companies have a forensic audit department. A forensic audit is a special part of accounting that requires expertise in accounting procedures and legal framework.
A forensic audit is usually carried out for several reasons. It is carried out when there is a case of suspected fraud. In case there is a matter of over padding budget, a forensic audit can easily uncover. The major reason why this type of audit is being carried out is to be able to provide evidence in a court, because of this the auditor will be called upon to stand as an expert witness. This audit type can also be carried out in other situations like when a company is filing for bankruptcy, legal filings, and some other legal business disputes.
Being an aspect of Audit, the process of Planning, collecting evidence and writing a report is still followed only that in this case the information will be used in court.
During this process what do a forensic auditor and his team do?
Planning stage:
During the planning stage, the auditor and his team set out goals to achieve and they might include:
- Identifying if fraud was carried out, if yes what kind of fraud was it.
- Determining the time frame in which the fraud was carried out.
- Discovering how the fraud was covered up
- Compliance in the fraudulent activity
- Quantifying the loss suffered as a result of such fraud
- Getting relevant evidence that can be used in court
- Suggesting measures to mitigate such frauds from occurring in the future
Collecting Evidence:
At this stage the Auditor and the team must ensure that all evidence gathers must prove adequately the following:
- Name of perpetrators
- The plot of the fraud
- The loss suffered due to the fraud
- The affected parties
The auditor and his team must ensure that evidence gathered are not tampered with and are admissible in the court of law.
Reporting:
This requires a written report that will be submitted to the client before the case is taken to court if desired. The report must contain:
1)The findings of the investigation
2) A summary of the evidence collected
3) An explanation of how the fraud was perpetrated
4) Suggestions for preventing similar frauds in the future like improving information control
Note: The presence of the auditor is needed in the court to explain the evidence gathered in a way that makes it easy for the court, and any other party to the case to easily understand.
That’s it for now on introduction to Forensic Audit, what else would you love me to talk about, forensic audit tools or case studies? Do share your opinion in the comment section
