Forensic Auditing Show

Forensic AuditingPrepared by:VikasKalyanshettyACA, B ComAssociate Finance Team: Systems & Process ImprovementCorporate Accounting GroupInfosys Technologies Ltd, Bangalore1

ContentsMeaning of ForensicForensic Auditing/AccountingQualities of a forensic accountantPurposeBroad Categories of FraudsBroad Stages of InvestigationsFraud SymptomsSpecialized Forensic Audit TechniquesGeneral Questions that are answeredStatutory Vs Forensic Audit Conclusion2

Forensic MeaningDictionary: Relating to, used in, or appropriate for courts of law or for public discussionHaving Legal identityForensic reports can be presented as an evidence in the court of lawE.g. Forensic Science3

Forensic Auditing/AccountingOften associated with fraudulent activitiesAlso performed in non fraudulent casesForensic auditing aims at legal determination of whether fraud has actually occurredInvestigating into Financial RecordsForensic Auditing and Accounting are same4

Required Skills of a Forensic Accountant – A Pizza!Base of Pizza: Accounting KnowledgeMiddle Layer: Dispersed knowledge of Auditing, internal controls, risk assessment and fraud detectionToppings: Basic understanding of the legal environmentThe Cherry on the toppings: A strong set of communication skills, both written and oral5

Purpose – In Case of Alleged FraudDiscover if there is a fraud (Focus – White Collar Crime)Identify those involvedQuantify the monetary amount of fraudPresent Findings to the client/court6

Three Broad Categories of FraudsCorruptionAsset MisappropriationFinancial Statement Fraud7

1. CorruptionConflicts of InterestsBriberyExtortion8

2. Asset MisappropriationCash TheftFraudulent DisbursementInventory FraudsMisuse of Assets9

3. Financial Statement FraudMaterial misstatement in Financial Statement:Deliberate Falsification of Accounting RecordsOmission of Transactions/Balances/Disclosures etc.Misappropriation of Financial Reporting Standards.10

Satyam Modus Operandi7,561 Fake InvoicesInflated receivablesFake Fixed Deposit Receipts were printed. Bank Guarantees were manipulatedFake Bank balance statements of ICICI, Citibank, HSBC and BNP Paribas11

Facts and Figures of SATYAM Fiasco!12

Broad Stages of Forensic Audit13

1) Accepting the investigation1) Forensic accountant must ensure whether their firm has Necessary skills and Experience to accept the work2) Ideally Statutory Auditors should not accept Forensic auditing assignments14

2) Planning the InvestigationObjectives of the investigation includes:Identify type of fraudIdentify FraudstersQuantify the lossGather EvidenceProvide advice to prevent the reoccurrence15

3) Gathering Evidence (Techniques)Testing internal controls Use analytical ProceduresApply CAATDiscussion and Interviews with the employeesSubstantive techniques such as Reconciliation, cash counts and review of stocks16

4) ReportingReport contains:Findings/ObservationsSummary of EvidencesAmount of lossHow fraudsters set up fraud scheme and which controls were circumventedRecommend improvements of controls17

5) Court ProceedingsMembers of investigation team are involvedEvidence gathering is presentedSimplify technical termsForensic Accountants do not testify that fraud has occurred but only present evidence18

Fraud SymptomsUnusual and unexpected changes Two types:Financial Record Related: Document analysis e.g. Handwriting/ Ink Analysis/ Trend analysisPerson Related: Personality/Life style changes/ Behavioral Changes19

Specialized Forensic Audit TechniquesSupervisingComparing actual with expectedSearch warrantsSurveillanceAnonymous complaints/tips (most popular)Interview & interrogationVerbal CuesNon Verbal Cues20

General Questions that are answered:How long fraud was carried?How was it conducted and carried?What was the suspects motive & opportunity to commit fraud?Whether it involved collusion?Are there any physical evidence at the scene of crime or in the documents?What comments are made by the suspects during interrogations?Were there any attempts to destroy evidence?21

ConclusionForensic Audit is a specialist type of engagement: Auditor Cum InvestigatorRequires skilled and experienced teamTeam should be comfortable with appearing in court proceedingsManagement of IT companies must carry outEmployees should be made aware before such audit to co operate with the teamException to the clause: ‘auditors can be watchdogs and not blood-hounds’ 23

References:1) Google2) American Journal of Business Education3) Article Published in The Chartered Accountant by S Vasudevan24

Forensic Auditing Show

More Related Content

What's hot

Viewers also liked

Similar to Forensic Auditing Show

Recently uploaded

In this document

Forensic Auditing Show