- What is a Fraud
- Need of Forensic Accounting & Auditing
- Forensic Accounting V/s Forensic Auditing
- Cyber World
Forensic accounting and auditing is the specialized field of accounting that investigates fraud and analyze financial information to be used in legal proceeding.
“Forensic” refers to “suitable for use in court of law” i.e. it includes the application of scientific methods and techniques to the investigation of crime, as much as it is concerned with law.
What is a Fraud:
The word “Fraud” means “a deceptive trick, scam, committed to cheat or mislead someone. Pressure, opportunity and justification for committing fraud are the factors which give rise to fraud. Fraud and fault should not be mixed. Fraud is intentional and fault is error committed involuntarily and unconsciously.
Need of Forensic Accounting & Auditing :
Transparency and accountability is what people seek nowadays and with the expansion of business economic irregularity and accounting scandals increase. No doubt that the main reason of all financial and accounting irregularities and scams is the greed to gain access to huge amount of funds illegitimately.
Orthodox transactional audit and accounting are not adequate to bring light on irregularities appropriation. Culprits use sophisticated technologies in committing frauds. So,forensic accounting & auditing is required to replace the stereo type investigation methodology.
- To avoid fraud and theft
- To restore the downgraded public confidence
- To ensure integrity transparency
- To use the forensic accountant’s conclusion to facilitate a settlement, claim etc.
- To create a positive work environment
Forensic risk management is a continuous process and involves prevention, detection and responding.
Forensic Accounting V/s Forensic Auditing
Forensic Accounting involves elaborate journey and investigation of transaction. It involves all accounting and financial analysis performed in connection with investigation , assessment and collecting proof of issues in a dispute – resolution proceeding. Analysis and reconstruction of evidence, tracing of fund, location of assets and interpretation of different transaction are the domain of forensic accounting.
Forensic Auditing refers to the regular and systematic review and appraisal of factors and forces that contribute to the realization of organizational goals. It ensures all the productive efforts remain centripetal to the objectives of company. It provides a double check on the consistency issues.
Forensic Accounting has wide applications and here we have some of them.
Applications in Cyber World
Cyber crime has turned out to be a great threat. Risk arises because digitized information resides in hard drives and is unsecured. Hackers use sophisticated technology to misuse the information.
Forensic accounting technology emerged for managing compliance risk and other risk arising from fraud. Retrieval of concealed data is one of the attributes of forensic accounting which is essential for investigation of economic offences. Traces of evidences and the interpretation of evidence is domain of forensic audit and investigation.
Strategies to be adopted:
- Continuous monitoring program
- More use of sophisticated technology than use of spreadsheet & database
- Use of statistical tools
- Use of data mining technique
Conventional accounting tools like trend analysis, radio analysis, fund flow analysis, cash movement are to be supplemented by forensic technology, forensic accounting tool like BENFORD’S LAW theory of relative size factor, CAAT, data mining techniques.
Uses in Banks
Forensic accounting preserve the truthfulness of banking transactions and financial statements. It is a valuable means to identify, classify and trail banking transactions. Forensic accounting practices are needed to validate that all banking activities are performed correctly. Increased regulatory inspections, and scams and fraud has led to the need of forensic accounting & auditing in banks. To curb the bank frauds, unique programmes are offered by forensic accounting.
External auditors find out deliberate misstatement only, but forensic accountants find out the misstatement deliberately.
Forensic accounting eliminates the business ills and creates a positive working environment. It has great scope in investigation during merger, amalgamation, tax investigation, economic crime investigation, all civil litigation support. It enables in thinking and enhancing the chances of success in business life and should be adhered strictly at all levels.