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Feb 03 2013

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Forensic Audit: How and Why is Conducted

Forensic audit is needed or applied mainly in those situations which have legal consequences. In a forensic audit the auditor uses three types of skills to conduct an audit. Those skills are accounting skill, auditing skill and investigating skill and those skills assist in performing an audit examination into a company’s financial statements.

Forensic audit is one kind of investigation and unlike other audits it is accepted by court of law. Now-a-days it is a prominent issue and it has been used frequently because of the recent scandals of renowned organizations.

A forensic audit is an examination of an organization’s or an individual’s financial affairs which results in a report that is used for a court of law. This type of audit is required whenever law enactment officials need reliable data on a client’s economic activities. Its objective is to find out actual cash transaction, detecting accounting error and fraud, detailing total assets. It is mostly used as after-the-fact basis when organizations deduce that a fraud has occurred within their organization. Forensic audit uses both accounting standards and auditing techniques combined with investigating approaches to detect fraud and probable problem areas for further investigation in future.

A forensic auditor’s job does not confined only to identify fraud but also to provide litigation support in a court of law whether his findings result in a legal actions. For example in case of NGOs, they gain huge amount of donation from various parties including national and international donors. There was an allegation by court against the local fund agent about corruption, it is a forensic audit.

Important!

Forensic auditing is conducted with the emphasis on following crucial issues

  • The potential susceptive motive and greater opportunity to commit fraud
  • Whether the committed fraud engaged conspiracy between several susceptive activities
  • Whether the evidence contained in the form of proper documentation
  • Doing unethical activity to destroy physical evidence
  • Influence on others to gain personal benefits

To sum up, forensic audit is a special type of audit engagement in order to detect and investigate every kind of fraud which requires multidimensional skills including accounting skills, auditing skills and relevant as well as a clear legal understandings.

Permanent link to this article: http://icabtutorial.com/forensic-audit/

  • Shahidul

    Brief but complete write up