Forensic Audit represents an area of finance that combines detective skills and financial acuity. The forensic audit professionals dig deep into financial reports, locate financial transactions and figure out what really happened at various companies and who is the real culprit behind any fraud which has taken place in the company.
THEY COVER AREAS SUCH AS
- Frauds Finding.
- Fraud detection and prevention techniques.
- Fraud-related auditing.
- Investigation and analysis of financial evidence.
- Development of computerized applications to assist in the analysis and presentation of financial evidence.
- Communication of findings in the form of reports, exhibits and collections of documents; and
- Assistance in legal proceedings, including testifying in court as expert witness and preparing visual aids to support trial evidence, etc.
Further, Forensic Auditing is used in a number of ways and for a number of purposes and not just for criminal activity detection. Firms that do "turn-arounds" or takeovers of businesses, for example, need to have an in-depth understanding of their target's finances. In that scenario, Forensic Audit provides a clear understanding of the financial position along with the connection of the communications related to that.
MEANING OF FORENSIC AUDIT
Forensic audit is, in general, referred to as an examination of evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court.
AS PER THE DEFINITION GIVEN IN INVESTOPEDIA
Forensic Audit is an examination and evaluation of a firm's or individual's financial information for use as evidence in court. A Forensic Audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims. In addition, an audit may be conducted to determine negligence or even to determine how much spousal or child support an individual will have to pay.
JACK BOLOGNA AND ROBERT DEFINED FORENSIC AUDIT
As the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a strong knowledge and understanding of business reality and the working of the legal system.
- COLLIN GREENLAND defines that forensic accounting (or auditing) is the integration of accounting, auditing and investigative skills in order to provide an accounting analysis suitable for the resolution of disputes (usually but not exclusively) in the courts.
- BUSINESS DICTIONARY defines Forensic Audit as the application of accounting methods to the tracking and collection of forensic evidence, usually for investigation and prosecution of criminal acts such as embezzlement or fraud. It further states that forensic audit is also called forensic accounting.
Forensic audit is becoming increasingly frequent for top leadership searches as stringent corporate governance norms and increasing stakes are prompting Indian and multinational companies to make sure that the people, they take on board have no blotches on their track record. This realizes the significance of Forensic Audit in the contemporary time for the corporates to rationalize premier principles of Good Governance.
A Forensic Auditor is engaged for analysing, interpreting, summarising and presenting complex financial and business-related issues in such a manner it is both understandable and presentable in court of law as an evidence. An Auditor is a person who has deep understanding of various applicable laws, business practices and a sharp and investigative mind so to find out irregularities not apparent and discoverable from simple audit procedures.
A Company Secretary is an eligible professional to be a Forensic Auditor, having good knowledge and command on applicable laws, business practices, people and environment of working of an entity.
ROLE OF COMPANY SECRETARY AS A FORENSIC AUDITOR
1. Criminal Investigations
A Company Secretary should use his/her investigative accounting skills to examine the documentary and other available evidence to give his/her expert opinion on the matter. Their services could also be required by Government departments, the Revenue Commissioners, the Fire Brigade, etc. for investigative purposes. Practicing forensic accountants could be called upon by the police to assist them in criminal investigations which could either relate to individuals or corporate bodies.
2. Personal Injury Claims
Where losses arise as a result of personal injury, insurance companies sometimes seek expert opinion from a forensic auditors before deciding whether the claim is valid and how much to pay.
3. Fraud Investigations
A Company Secretary might be called upon to assist in business investigations which could involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence review. In cases involving fraud perpetrated by an employee, the forensic auditors will be required to give his/her expert opinion about the nature and extent of fraud and the likely individual or group of individuals who have committed the crime. The forensic expert undertakes a detailed review of the available documentary evidence and forms his/ her opinion based on the information gathered during the course of that review.
4. Investigation and Inspection
Company Secretary may help the Police, ACB and other investigating authorities in collecting evidence and for other investigation purposes.
For example, section 157 Cr.P.C, 1973;
- Sections 17 and, 18 of the Prevention of Corruption Act, 1988;
- Section 6 of The Bankers Books Evidence Act, 1891;
- Section 78 of Information Technology Act, 2000;
Section 447 of the Companies Act, 2013 wherein the Court or Police may require the skills of forensic auditors while inspecting any books in so far as related to the accounts of an accused.
5. Expert Opinion
Company Secretaries see and carefully examine the accounts and balance sheets and use his skills to find out whether there is any fraud committed or any anomaly associated with it by giving his expert opinion. He can also be called as an expert under section 45 of the Indian Evidence Act, 1872
6. Professional Negligence
The forensic auditor might be approached in a professional negligence matter to investigate whether professional negligence has taken place and to quantify the loss which has resulted from the negligence. A matter such as this could arise between any professional and their client. The professional might be an accountant, a lawyer, company secretary etc. The forensic expert uses his / her investigative skills to provide the services required for this assignment.
7. Expert Witness Cases
Company Secretary as Forensic Auditor often attend court proceedings to testify in civil and criminal court hearings, as expert witnesses. In such cases, they attend to present investigative evidence to the court so as to assist the presiding judge in deciding the outcome of the case. He can also be called as an expert under section 45 of the Indian Evidence Act, 1872.
8. Mediation and Arbitration
Some forensic auditors because of their specialist training they would have received in legal mediation and arbitration, have extended their forensic auditing practices to include providing Alternative Dispute Resolution (ADR) services, in absence of which a matter could be expensive and time consuming for individuals or businesses involved in commercial disputes with a third party. [Section 89 of the Civil Procedure Code, 1908]
9. Litigation Consultancy
Company Secretaries are eligible to be engaged in litigation and assisting with evidence, strategy and case preparation.
10. Computer Forensics
A Company Secretary is trained to assist in electronic data recovery and enforcement of IP rights etc. Company Secretary plays an important role in mitigating the Corporate Frauds.
DISCLAIMER: The article presented here is only for sharing knowledge with the readers. In case of necessity do consult with professionals.
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