Forensic Audit Vs Financial Audit In Relation To Corporate Fraud

slang — Mon, 03 Sep 2007 07:09:46 +0000

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Many of the times, external auditors are unable to detect corporate fraud as they are more focus towards financial audit. It has nothing to do with the competency level.

Forensic accounting work entails a different set of skills and experience besides the usual accounting skill whereas the financial audit is more to express an opinion on whether there are any major misstatements of company accounts based on generally accepted accounting principles and auditing standards. For obvious reason,corporate fraud is always a deliberate ploy or action by an individual and/or group to deceive an organisation for personal or collective gains.

In Forensic/Fraud Audit, the forensic accountants specifically look for evidence of fraud and the process and procedures are different compared with financial audit. It entailed many aspects and the work scope was beyond what auditors have to doFor example, the forensic accountant would run a battery of tests on the company’s accounts including:

physical examination and investigation of its operations such as debtors and stock levels,
investigate in detail from accounting irregularities,
tests on system applications,
variances in debtors and stock levels,
invoices and even visit customers and suppliers if necessary.
Other intangibles like body language were also things that need to be observed and assessed.

In fact there are no quick and fast rules to fraud detection. The forensic accountant will do whatever is necessary to detect fraud, be it through investigations of systems, billings, stock and people working for the company. It is very much like a private detective Hence, normally the detection of fraud in any organisation or company is left to the experts as investigation goes beyond normal professional accounting work scope which are external parties who specialize in fraud detection/forensic audits. To those forensic accountants, some of the indicators of fraud or common red flags includes the following:

· rapid growth of the company versus industry growth,

· abnormal profits in contrast with general economic performance,

· unusual variances in stock and debt levels,

· financial ratios, and

· movement of funds.

Forensic Audit Versus Internal Audit

slang — Sat, 01 Jul 2006 20:17:27 +0000

In my earlier article on how fraud can be committed, let’s us turn to a branch of accounting which focus very closely on detecting or preventing accounting fraud i.e. called Forensic Accounting.
Interestingly, the word “forensic, will turn our mind immediately to the medical professions, whereby crimes are solved by examining dead bodies.
We are also very clear that external auditors are those who expressed a true and fair view of the company’s financial statements.

So who really is a forensic accountant?
A forensic accountant is simply one which assists management to detect fraud, identify risk exposure areas and more importantly to implement prevention programmes by devising the appropriate controls so as to ensure moving forward, cases like Enron and others will not happen.

The forensic accountant is a specialist that due to his or her diverse experiences and training is able to see warning signs of fraud. ( fraud is as a deliberate deceit, which is planned and executed to deprive an individual or organization of the property, money or any other valuable security.) This is normally through the breakdown in internal controls/checks, examining behaviour of fraud perpetuator for example employees who suddenly resigns, maintain an excessive lifestyle or who tells other colleagues he loves to go for gambling.

If we were to examine the role of the internal auditors, they are in existent in the organization for two dual purposes: one to perform audits that can enhance operational efficiencies and secondly to detect weaknesses in internal controls/checks so as to prevent or detect frauds.

In the event that there might be a clash of role, management might need to review the respective role to ensure resources are effectively being used.

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Forensic Audit Vs Financial Audit In Relation To Corporate Fraud

Forensic Audit Versus Internal Audit