FORENSIC AUDITING

FORENSIC AUDITING

As a result of all these things, the auditors coming together decided to have a special people to do an in-depth study of what is happening. The need to incorporate expertise that will be charged with responsibility of carrying out judicial functions together with accounting skills instigate forensic auditing.

Mobile greek (2011), defined forensic auditing as an examination and evaluation of a firm’s or individual financial information for use as evidence in court. It can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims.

Forensic auditing is defined as “the application of auditing skills to situations that have legal consequences”. Chatterji (2009). It is also seen as “an examination and evaluation of a firm’s or individual’s financial informations for use as evidence in event”. During a forensic auditing, professionals compile and assess financial information to be used in legal proceedings, whereas the auditing is conducted by forensic auditors who rely on the principles of law, business and ethics. These reports are sometimes used to prepare legal defenses as well as prosecuting a party for fraud, embezzlement or other financial claims. Investopedia (2011).

Forensic auditing has been seen as a specialization within the field of accounting, whereby forensic auditors provides experts testimony during trial proceedings. Nigrini (2011).

In relation to this, Scott (2008) defined forensic defined forensic auditing “as a special practice of accounting that involves using auditing techniques to specifically look for financial misconduct”.

APPLICATION OF FORENSIC AUDIT

Due to the increase of fraudulent practices, there has been increasing risk of auditing skills to prevent fraud by identifying and rectifying situations which could lead to fraud been perpetrated.

It has been observed that the cost of implementing procedures to monitor and restrict the fraudulent acts are far less than the fraud risk that companies face each day. Chatterji (2007).

It will be useful therefore to discuss forensic as being either “proactive or reactive”.

Proactive Forensic: This audit helps businessmen to ensure that there processes stay robust, and it can be viewed from different aspects depending on its application. Ezeilo (2010).

i. Statutory Audit:

In this case, auditing standard prescribe that internal control should be studied and evaluated in respect of safeguarding assets and resources when performing regularity and financial audit, and in assisting management in complying with laws and regulations when performing compliance auditing. Asosai (2011).

ii. Regulatory Compliance:

This technique are usually used by government departments or agencies to access compliance with regulations governing payments or grants or subsides. Performance auditors could also use this technique while auditing such governmental programs. Ezeilo (2010).

iii. Diagnotic Tool:

Forensic auditing can be used either by management or by auditors to carry out general reviews of activities to highlight risk arising either out of fraud or from any other source, with they purpose of initiating focused reviews on particular areas and targeting specific threats to the organization. Asosai (2011).

iv. Investigation of Allegation:

The techniques of forensic auditing are useful in this case, in the sense that various complaints and allegations could be used as a guild for gathering evidence used in investigation. This is cited as being proactive because it is widely felt that the existence of a system of investigation in such cases is significant deterrent to fraud and corruption. Ezeilo (2010).

Reactive Forensic:

They objective of this audit is to investigate cases of suspected fraud so as to prove or disprove the suspicious and if proven, the person involved is to be identified, the findings are to be supported by evidence, after which it is presented in an acceptable format in any subsequent discipline or criminal proceedings. Ezeilo (2010).

Due to the processes involved in reactive forensic audit, it is important therefore to keep in view the following:

i. Working relations with the investigating prosecuting agencies.

ii. Authorization and control of the audit investigation.

iii. Documentation of relevant information and safeguarding all prime records pertaining to the case.

iv. Rules of evidence on government admissibility or authentication of records.

v. Confidentiality of evidential document.

vi. Evaluation of the evidence to asses whether the case is sustainable.

vii. Legal advice where appropriate.

viii. Reporting the findings in a manner that needs legal requirements. Chatterji (2007).