FORENSIC
ACCOUNTING &
AUDITING
By – Ms. Soumya Mohanty
Guest Faculty
P.G. Department of Commerce
Utkal University
Unit – 1
Fundamentals for Forensic
Accounting
Forensic Accounting is gathering and evaluation
of evidence by a Professional to interpret and
report findings before a Competent Authority
The overriding objective of Forensic Accounting
is to gather facts and evidence, especially in the
area of financial transactions and operational
arrangements, to help the Professional report
findings, to reach a conclusion (but not to
express an opinion) and support legal
proceedings.
Professional: A professionally qualified
accountant, carrying membership of a
professional body, such as the ICAI, who
undertakes forensic accounting and
investigation assignments using
accounting, auditing and investigative
skills
Financial forensics is the application of financial
principles and theories to facts or hypotheses at issue
in a legal dispute and consists of two primary functions:
1. Litigation advisory services, which recognizes the role
of the financial forensic professional as an expert or
consultant.
2. Investigative services, which makes use of the
financial forensic professional’s skills and may or may
not lead to courtroom testimony.
Investigation is the systematic and critical
examination of facts, records and documents
for a specific purpose
A critical examination of evidences, documents, facts
and witness statements with respect to an alleged
legal, ethical or contractual violation. The
examination would involve an evaluation of the facts
for alleged violation with an expectation that the
matter might be brought before a Competent
Authority or a Regulatory Body.
According to Investopedia, Forensic Audit is defined
as the examination and evaluation of a firm's or
individual's financial information specifically for use
as evidence in a court setting. This type of audit
may be initiated to prosecute individuals or entities
for financial crimes such as fraud or embezzlement.
Forensic Audit combines accounting, investigative, and
legal expertise to scrutinize financial information with
the goal of providing evidence that can be presented in
a court of law. It is a specialized form of audit with a
focus on uncovering financial irregularities and
supporting legal proceedings related to financial claims
or disputes.
PARTIES APPOINTING FORENSIC
AUDITOR
1.Legal Entities and Courts
2.Regulatory and Law Enforcement
Agencies
3.Corporate Entities
4.Insurance Companies
5.Banks and Financial Services
6.Individuals
APPLICATIONS OF FORENSIC
ACCOUNTING & AUDITING
1. Investigation and Analysis of Financial Evidence
2. Reporting, Experts, and Testimony
3. Bankruptcy, Insolvency, and Reorganization
4. Economic Damage Calculations
5. Family Law
6. Financial Statement Misrepresentation
7. Fraud Prevention, Detection, and Response
8. Business Valuation
9. Assistance in Legal Proceedings
10. Communication of Findings
SKILLS AND EXPERTISE OF A FORENSIC ACCOUNTANT
1. Analytical Skills
2. Attention to Detail
3. Knowledge of Accounting and Auditing
Principles
4. Professional Skepticism
5. Legal Knowledge
6. Communication Skills
7. Ethics and Integrity
ROLES & RESPONSIBILITIES OF A FORENSIC
ACCOUNTANT
1. Fraud Detection and Investigation:
1. Identify and investigate potential financial fraud and misconduct.
2. Use forensic accounting techniques to uncover fraudulent
activities, such as asset misappropriation, financial statement
fraud, and corruption.
3. Conduct detailed analysis of financial records to trace the origins
and destinations of funds.
2. Litigation Support:
1. Provide expert testimony in court regarding financial matters.
2. Assist legal teams in preparing cases involving financial disputes,
such as breaches of contract, shareholder disputes, and
intellectual property theft.
3. Prepare comprehensive forensic accounting reports that present
findings in a clear and concise manner for use in legal
proceedings.
ROLES AND RESPONSIBILITIES OF A FORENSIC
ACCOUNTANT
3. Financial Analysis:
1. Analyze financial data to assess the economic impact of
alleged fraudulent activities.
2. Reconstruct financial statements and records to provide an
accurate picture of financial activities.
3. Evaluate the financial condition and performance of
businesses and individuals involved in legal disputes.
4. Asset Tracing and Recovery:
1. Trace and identify hidden or misappropriated assets in cases
of embezzlement, money laundering, or divorce settlements.
2. Work with law enforcement and legal teams to recover
stolen or misappropriated funds.
ROLES AND RESPONSIBILITIES OF A FORENSIC
ACCOUNTANT
5. Risk Assessment and Management:
1. Conduct risk assessments to identify vulnerabilities in financial
systems and processes.
2. Develop and implement internal controls and anti-fraud measures
to prevent future occurrences of fraud.
3. Advise organizations on best practices for fraud prevention and
detection.
6. Compliance and Regulatory Investigations:
1. Ensure compliance with relevant laws, regulations, and industry
standards.
2. Investigate violations of regulatory requirements, such as anti-
money laundering (AML) laws, securities regulations, and tax laws.
3. Assist organizations in responding to regulatory inquiries and
investigations.
ROLES AND RESPONSIBILITIES OF A FORENSIC
ACCOUNTANT
7. Digital Forensics:
1. Utilize digital forensic tools to investigate cybercrimes and
data breaches.
2. Analyze electronic data, such as emails, digital transactions,
and financial software logs, to uncover evidence of fraud.
3. Work with IT specialists to secure and preserve digital
evidence for use in legal proceedings.
8. Insurance Claims and Disputes:
1. Investigate and verify insurance claims related to property
damage, business interruption, and employee dishonesty.
2. Provide expert analysis and testimony in insurance litigation
cases.
FORENSIC AUDITOR
VS
FINANCIAL AUDITOR
ASPECT FINANCIAL AUDITOR FORENSIC AUDITOR
Purpose To provide an To investigate specific
independent opinion on allegations or suspicions of
financial statements fraud, misconduct, or
financial irregularities
Scope General financial Detailed oriented focusing
statement review and on specific issues or
Compliance checks transactions
Nature of Work Routine, systematic, and Non-routine, often
periodic triggered by suspicion or
evidence of wrongdoing
Objective Ensure accuracy and Determine the presence of
compliance with fraud and gather evidence
accounting standards for legal proceedings
Techniques Audit Sampling, Forensic accounting
Used analytical procedures, techniques, digital forensics,
substantive testing detailed transaction analysis
ASPECT FINANCIAL AUDITOR FORENSIC AUDITOR
Compliance Compliance with Adherence to legal standards
Focus Generally Accepted and evidentiary
Accounting Principles requirements
(GAAP) or International
Financial Reporting
Standards (IFRS)
Appointment Often appointed by legal
Typically appointed by the
by Parties entities, courts, regulatory
company's management
agencies, or parties involved
or board of directors
in disputes
Regulatory Governed by auditing May involve working with
Environment standards and regulations law enforcement and
(e.g. IAASB) regulatory bodies
