As per dictionary, the word ‘forensic’ means ‘using scientific tests to find out about a crime’. One might have heard this word multiple times in crimes such as murder, dacoity or others mentioned under Indian Penal Code, 1860 or Criminal Procedure Code, 1973. In those case, for checking finger prints, matching DNA or running chemical tests for ascertaining the criminal such forensic tests are done. However, there is also a similar term that exists in the world of accounting which speaks of “Forensic Audit”. Recently, many banks and big companies, firms of India have gone through it.
In cases of fraud, embezzlement, asset misappropriation, deliberately done wrong investments, bribery, cybercrimes, this type of audit is done and it is different from statutory audit, which is mandatory for every company to be done in every financial year. The elements and procedure of forensic audit is as follows;
- Third-party consultants are often hired to do it so that the audit remains unbiased.
- Systematic and independent examination of books, accounts, records, vouchers of an organization is done.
- The test on truthfulness of such records and representation is done.
- Fieldwork is the key to good forensic audit because cross checking of representations and records from various sources is done. For example- if an invoice of Rs. 10 lac spend on foreign travel for business purpose is shown in accounts, then the auditor may examine the actual purpose by contacting the accommodation where the person stayed, check whether any business advantage was actually there or not.
- Obtaining and safe vaulting the evidences collected.
- Detailed analysis and assessment of evidence.
- Exercising Professional Judgement
- At last, it is reporting and documentation.
Forensic Audit is a good way to maintain good governance practices hence even if there is no such crime, big companies get this audit done from time to time so that any loopholes can be traced and corrected within time.
