What is Forensic Auditing

The last decade or so the words forensic auditing have become part and parcel of our vocabulary but under the general population the only association they make is that it is just another "accounting" or "auditing" procedure or process.

But let us start at the very beginning. Accounting is the process of identifying, measuring, recording, and communicating economic information about an organization or entity, in order to permit informed judgments by users of the information. On the other side of the coin is forensic auditing which is a new discipline under the umbrella auditing.

It is crime, and especially economic crime that gave birth to forensic auditing. Economic crime is an unpleasant fact and has escalated into a monster. It touches every country, every industry, and has no signs of stopping. During the past decade, the number of reported cases of fraud and corruption has continued to grow dramatically. Compounding this is the challenges faced by the criminal justice system and a general absence of the necessary skills to gather the proper audit evidence so vital to criminal investigations. Information from law enforcement and criminal justice agencies about corruption and fraud cases is that generally speaking, the success rate for convictions are not satisfactory - the reason being that prosecuting authorities lacked skills and knowledge to provide effective investigation and prosecution of corruption and fraud cases. Enter forensic auditing!

Therefore, forensic accounting draws its name from association with a court of law. It is performed to accomplish an objective that involves a judicial process. Examples of forensic accounting objectives include: computation of asset values in a divorce proceeding; assessment of damages caused by an auditor's negligence; fact-finding to see whether embezzlement has taken place, in what amount, and whether criminal proceedings are to be initiated; and the collection of evidence in a criminal proceeding. Forensic accounting is focused upon both the evidence of financial transactions and reporting as contained within an accounting system, and the legal framework which allows such evidence to be suitable to the purpose of establishing accountability. Forensic accountants are typically Chartered Accountants that specialize in those types of cases where there is a need for such evidence.

Their job is to detect and interpret the evidences of both normal (non- fraudulent) and abnormal (fraudulent) transactions in the books and records of an accounting system and the subsequent effect upon the accounts, inventories, and the presentation thereof. It is imperative; therefore, that forensic accountants first understand what normal accounting procedures and processes are - remember they are first and foremost Chartered Accountants. Just as forensic dentists and forensic anthropologists are dentists or anthropologists first (that is, they are foremost professionals in the underlying discipline and are specialists in its forensic aspects), so too forensic accountants are accountants first.

In conclusion, forensic accounting is sufficiently thorough and complete so that an accountant, in his considered independent professional judgement, can deliver a finding as to accounts, inventories, or the presentation thereof that is of such quality that it would be sustainable in some adversarial legal proceeding, or within some judicial or administrative review.

On a lighter note; never seek advice from a Chartered Accountant - they are trained to find problems not solutions!