Forensic Auditor

Forensic Auditor (Everything you need to know)5 min read

Like medicine, accounting is a wide field that offers several opportunities for one to specialize in. Forensic auditing (a job of a forensic auditor) is one of these specializations.

It is a branch that deals with applying accounting skills to legal questions and could involve contending fraud or exposing failure to agree with the standards of accounting.

What a Forensic Auditor is all about

Accounting students who aspire to become forensic auditors can select from the available number of programs offering that major or better still, take a degree in accounting, and then earn certification in techniques based on forensic accounting. 

Skills needed in Forensic Auditing:

Forensic accountants must have a wide variety of skills which includes; Fundamental knowledge or background in accounting principles and the regulatory environment for business accounting.

Moreover, forensic auditors also investigate and must obtain vital information by interrogating suspected parties or witnesses. Another helpful skill is public speaking, as forensic auditors most times make testimonies in courtrooms.

Everything you need to know about Forensic Auditing

Forensic auditing is one of the fields in accounting, of which a forensic auditing department is usually found in large accounting firms. Accounting, auditing procedures and expert knowledge are required when conducting a forensic audit. 

A forensic auditor usually examines and evaluates a company or an individual’s financial records to obtain evidence used in court.

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Forensic audits encompass a vast scope of activities that involve an investigation. A forensic audit is most times carried out to charge or start criminal proceedings against a party for cases of fraud, embezzlement, or other financial crimes.

During the process of a forensic audit, the auditor may be called upon during trial proceedings to act as an expert witness. 

Asides from cases of financial fraud and embezzlement, forensic auditing could also include situations such as conflicts that relate to divorces, business closures and bankruptcy filings.

In addition, a forensic audit can either expose or prove different types of illicit activities that may be going on in a firm.

Steps or processes involved in Forensic Auditing

A forensic audit process is most times similar to that of a regular financial audit. It involves planning the investigation, collecting evidence, and writing a report (which includes a potential court appearance). 

The attorneys on both sides provide evidence that either proves or disproves the fraudulent crime, and the amount of money lost is calculated later. Should the case be taken for trial, the findings are presented to the client and the court.

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Stages include:

Planning the Investigation

In this stage, planning is done by the forensic auditor and a team to achieve specific goals, such as;

  • Identifying any frauds carried out.
  • Ascertaining the time length in which the fraud happened.
  • Finding out how the fraud was made hidden.
  • Naming the fraudsters involved. 
  • Determining the damages suffered due to the fraud.
  • Collecting important evidence that is acceptable and allowable in court.
  • Recommending actions to hinder such frauds from happening in the future.

Collection of Evidence

Evidence gathered should be sufficient to uncover the perpetrator(s) identity in court, expose the details of the fraud scheme, and keep records of the financial damages suffered and the victims affected.

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Through a reasonable flow of evidence, the court is aided to understand the fraud and the evidence. Forensic auditors then suggest preventive measures or actions making sure that documents and other evidence gathered are still intact.

Reporting

A forensic audit isn’t complete without a written report. A report is required on the fraud committed, which must be presented to the client to continue with the legal proceedings if they so desire. 

The written report must include the following:

  • The findings obtained during the investigation.
  • A synopsis of the evidence gathered.
  • An explanation of how the fraud was committed.
  • Preventive measures against such fraudulent activities in time to come and could include amelioration of internal controls.

Court Proceedings

The forensic auditor must be present in court to explain the evidence and how the parties were identified.

Ambiguous accounting issues must be simplified and presented in a layman’s language to help people in court who do not know legal or accounting understand the fraud in clear terms.

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Why is a forensic audit conducted by a Forensic Auditor?

Forensic audit investigations are carried out for the following reasons:

Corruption

During the processes of investigating fraud, an auditor would pay attention to:

  • Conflicts of interest: This is when a fraudster uses their power for personal benefits that could damage the company.
  • Bribery: This is giving money to influence a situation or get things done in one’s favour. 
  • Extortion: This is when a party demands money in exchange for something.

Asset misappropriation

This is the most prevalent form of fraud. Asset misappropriation includes cash embezzlement, creation of false invoices, payments to suppliers that do not exist or employees, assets misuse, or inventory theft.

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Financial statement fraud

Organizations or firms engage in this type of fraud to show that the firm’s financial performance isn’t as same as the former and that it is, in fact, better than what it is. 

The aim of presenting false numbers may be to:

  • Boost liquidity that is in the firm’s potency to ensure money is in circulation.
  • Guarantee or ensure that bonuses are being received by stakeholders and shareholders. 
  • Surmount pressure for market performance.

Financial statement fraud could take the form of accounting records and documents forged deliberately, omission of transactions, either expenses or revenue generated, non-disclosure or exclusion of relevant details from the financial statements, or non-application of the essential financial reporting standards.

Forensic Auditor

Conclusion

In summary, a forensic audit is a rigorous commitment that necessitates competence in both accounting and auditing techniques, as well as professional legal understanding.

It is usually selected instead of a regular audit if there’s a possibility that the evidence gathered would be used during court proceedings.

So, a forensic auditor is needed to have both knowledge and experience of several frauds that can be conducted and how to collect evidence.

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