Forensic & Accounting Investigation Standards - Expansive by Design?

The Forensic Accounting and Investigation Standards ("FAIS") issued by the Institute of Chartered Accountants of India ("ICAI") is a salient endeavour as amalgamating a multitude of complex and divergent topics is a formidable task. However, in its attempt to make the FAIS simple and accessible, it appears that ICAI had unintentionally crafted ambiguities which may potentially result in unexpected consequences for CAs executing FAIS engagements.

While there are various potential issues in the current FAIS framework, this note seeks to articulate the one of significant risks that a CA may face in connection with FAIS mandates - Grounds for Professional Misconduct

The FAIS stipulates that any mandate which is in the nature of Forensic Accounting and Investigation would have to adhere to FAIS and non-compliance would lead to disciplinary action. However, the definitions of Forensic Accounting and Investigation do not reference fraud or misconduct as a predicate element. In fact, any matter which involves a fact-finding/analysis exercise in connection "alleged legal, ethical or contractual violation" where such violation may be litigated would be construed as an Investigation. This broad definition can potentially include a broad swathe of mandates. For example, if a CA is engaged to certify value of goods (fact-finding) supplied in connection with a contractual dispute (alleged contractual violation), then the mandate would be classified as an Investigation. In fact, the FAIS cite valuations, loss and damage estimations, as examples of engagement types which have to comply with FAIS.

However, if the CA has not performed the mandate under FAIS, the work product may be potentially challenged during the litigation as being non-compliant with professional standards (FAIS) and would therefore not be admissible and this stance may also lead to grounds to cite professional misconduct under the Chartered Accountants Act, as compliance with FAIS is mandatory.

It is unclear whether the ICAI intended to include a broad spectrum of engagements under FAIS. However, the ambiguity in the definitions of Forensic Accounting and Investigation would lead to diverging views and stances on the types of mandates which should comply with FAIS. As such, it would be incumbent for CAs to analyze the scope of a mandate with specificity, particularly in cases where there is a potential for litigation and assess whether the FAIS framework will apply.

The author is a risk and compliance professional who works in areas at the intersection of law, processes and accounting.