Khandhar Mehta and Shah | Forensic Audit
Corporate fraud has been a serious risk to businesses of all sizes and types.
Some of the recent cases of large corporate frauds have shown that dishonesty is prevalent everywhere, and it affects the profitability, efficiency, and reputation of the organization. Forensic auditing includes a vast spectrum of activities, and it is not limited to regulatory guidance. It is a very specialist type of auditing, and it requires a team of highly skilled forensic auditors to carry out the fraud investigation. The process of forensic auditing is a very sensitive one and requires cooperation from both the client and the forensic auditor. We are here to assist you through every step of forensic accounting and forensic auditing to make it a straightforward process.
What is forensic audit
Forensic auditing is defined as an examination and investigation of a firm or individual’s financial statements and records to find evidence that can later be used in the court of law. There are various reasons for conducting forensic auditings, such as for prosecuting someone for embezzlement, financial crimes, or fraud.
The process of forensic auditing is most likely to be similar to other types of auditing, as it includes phases like planning, investigating, reviewing, and reporting to the client. The reason as to why the investigation is conducted is to discover if the fraud actually took place, and if it did who were involved, to quantify the monetary loss and finally present the record to the client and ultimately to the court.
Therefore, in simple words, it can be concluded that forensic auditing is a procedure carried out to produce evidence. The auditing techniques helps in identifying and gathering evidence to prove various aspects like duration, the involvement of people and quantity of loss, etc.
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types of fraud
As a forensic auditor, we are asked to audit or investigate different types of fraud. While one can categorize fraud into many different types, they can broadly be categorized into three types:
As per our experience, it is the most common fraud by far. It includes cash theft, which can be anything from stealing petty cash to cash from the office treasure. Fraudulent disbursement is also an example of this fraud where the employees might make payments to fictitious suppliers. Fictitious invoices, misuse of assets, and embezzlement of stock in trade are some of the examples of asset misappropriation.
It further includes three types of corruption that are extortion, bribery, and conflict of interest. Extortion means demanding money for securing an outcome from it. Bribery means offering money to obtain a desired place or status. Conflict of interest happens when fraudster influences a person to achieve personal gain, which is most detrimental for the company.
Financial statement fraud
This type of fraud causes material misstatement in the company’s financial statement. It occurs when someones intentionally falsify the financial statement by omitting, adding, or misrepresenting the facts. It is done to deceive the users of the financial statements and influence their decisions.