Forensic audit is an accounting process that examines and investigates a company's financial records to investigate matters of fraud or embezzlement. The findings of a forensic audit can be used as evidence in case of legal proceedings.
Why is forensic audit conducted?
Forensic audit is conducted to find out if there have been issues such as -
- Asset misappropriation
- Fraudulent reporting in financial statements.
Can Forensic audits be conducted in India?
Forensic audits are valid in India. RBI has made them mandatory for large advances and restructuring of accounts. If a company itself , a lender to a company; or the government suspects financial irregularities in a company, a forensic audit can be asked for.
Who conducts forensic audits?
Audit firms can conduct forensic audits. Forensic audit requires a specialised skillset. There are specialised courses related to fraud psychology, financial crime patterns, criminal laws and forensic software available to accountants so that they are equipped to conduct forensic audits competently. For example, Certificate Course on Forensic Accounting and Fraud Detection is provided by the Institute of Chartered Accountants of India.
How is forensic audit being used in India?
Unitech, a construction company has not been able to complete projects on time leaving homeowners disgruntled. So the Supreme court has asked for a forensic audit mainly to find out how the funds from buyers and financial institutions have been utilised by Unitech.
A forensic audit had been asked for by RBI on many banks to track how money was moved and extent of fraud involved in the case against Nirav Modi, Mehul Choksi and Gitanjali group.
What are the challenges for forensic audit?
- Forensic audit in India has not been successful in many cases as it is difficult to get hard evidence due to comprehensive cooking of record books and appropriate covering of tracks.
- It also requires specialist skills such as a combination of accounting skills, analysis skills, understanding of software, understanding of the legal framework and investigative skills. It is not easy to find a combination of these skills easily.
- It is not easy to get enough evidence against criminals who are politically powerful and foreign fraudsters.
- Technology develops at a staggering pace and so is its adoption. Forensic audit firms find it difficult to keep up the pace always.
Forensic audit is important as it helps to keep a check on white collar crime and mitigates risk of fraud, misappropriation of assets and corruption. It also ensures companies do their part to have a transparent working environment, have strong internal controls and implement anti-fraud policies and systems.