A forensic audit, also known as an independent audit, is one of the many ways businesses can ensure they are accountable to their customers, suppliers, and investors. It involves an outside company or auditor looking through a company’s books and records to ensure there aren’t any problems with how funds are being spent or how assets are being managed.
Forensic accounting isn’t something you’ll find on the syllabus of your accounting courses. Still, it is a beneficial skill if you look at someone else’s finances and ensure they add up correctly. Suppose you have reason to believe that fraudulent activities are being carried out within your organization, or you suspect that one of your employees is laundering money. In that case, forensic accounting can be a potent tool in determining whether or not those suspicions are authentic and help you take necessary action if they are. If you need to perform one of these audits in India, follow these five tips for the best results.
- UNDERSTAND THE CLIENT’S BUSINESS
Understanding your client’s business is the key to success with any audit. If you need to know what your customer does, how will you know what to look for? The first thing to do is ask questions. It can be as simple as How did you start this company? Or What are the company’s goals? A good rule of thumb is that unanswered questions should be investigated further.
- REVIEW THE CLIENT’S INTERNAL CONTROLS
A forensic audit scrutinizes a company’s financial records and transactions to discover, among other things, fraudulent activity. The first step to performing a forensic audit is to review the internal controls of the company being audited. These controls are designed to provide reasonable assurance that there are no errors or irregularities which would have a material impact on the company’s financial statements and disclosures.
- OBTAIN AN UNDERSTANDING OF THE CLIENT’S INDUSTRY
Before performing any forensic audit, it’s essential to understand the client’s industry. The more you know about their business practices and the environment they work within, the better you’ll be able to conduct your audit. Understand how their accounting records are created: Before examining any data, it’s crucial that you understand how the company is recording its transactions.
- IDENTIFY RED FLAGS
Auditors can identify them when:
- There are frequent changes in company management and auditors.
- The company has significant debt compared to the assets, assets have been impaired or written down, or there is an over-reliance on one or two customers.
- The auditor’s independence is questionable; they may be related to senior management, be paid from commission generated from transactions with the company, or may have conflicts of interest.
- UTILIZE TECHNOLOGY
A forensic audit is an extensive investigation that examines all aspects of an organization’s operations. It is used to identify and document fraud, waste, abuse, or other illegal practices which may be going on within the company. It gets the most out of this type of investigation, and it’s essential to know how to do it properly and use advanced tools and techniques.
The final note
Forensic auditing, also called financial forensics or investigative auditing, is the process of objectively verifying and reporting on an entity’s financial information to ascertain its truthfulness and accuracy. Forensic auditing may be done by accountants, lawyers, or government agencies tasked with ensuring that entities follow the law and regulations. A forensic audit can be conducted on any organization, including non-profit organizations and government agencies. It overlaps considerably with the practice of risk management, which involves internal control assessment, management review, quality control, and compliance audits.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.