WHAT IS AUDIT?
“Audit is an examination of accounting records, undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they purport to relate.” Prof. Dickers
“Auditing is concerned with the verification of accounting data, determining the accuracy and reliability of accounting statements and reports.” R.R. Mautz
“Long range objectives of an Audit should be to serve as a guide to management's future decisions in all financial matters such as controlling, forecasting, analysing and reporting. These objectives help the business unit to improve its performance.” Arthur W. Holme
- Auditing is nothing but the systematic and critical examination and verification of the books of accounts. It can be undertaken throughout the year or periodically.
- The primary aim is to find out whether the financial statements exhibit a true and fair view of the business.
- Origin of the term audit is said to be in the Latin term audire which means to listen.
- Audit of accounts by a duty qualified chartered accountant is mandatory for the registered joint stock companies, public trusts, bigger co-operative societies and for income tax and VAT tax payers above a particular limit.
Objectives of Audit:
- To find the reliability of the financial position and profit and loss statement.
- To check whether the financial statements of the company present a true and fair view.
- To check whether the financial statements are kept as per the provisions of the relevant Act.
- Verification of the entries with the relevant documentary evidences.
- To check whether all the money received is accounted for or not and all the payments made have proper supporting documents.
- To conduct an independent review of financial statements.
- Auditor has to examine the prevailing internal control and internal check systems prevalent in the organisation and must check the arithmetical accuracy of the books of accounts.
- The auditor has to check the physical existence of various assets shown in the balance sheet and check whether they present a true and fair value.
- After checking the accounts the auditor has to express his or her personal judgement on the maintenance of the books of accounts.
- The company who audits its financial statements on a timely basis builds a good reputation and goodwill.
- Helps the stakeholders with decision making as audited accounts are considered more reliable.
- To detect and prevent frauds and errors.
The main difference between the two is that errors are generally committed due to lack of knowledge and are considered to be innocent, whereas, frauds are committed intentionally.
What Is A Forensic Audit?
Forensic Audit is a meticulous and thorough examination of financial records and transactions to uncover a potential fraud, embezzlement, or other financial irregularities. It’s a specialized field that combines accounting, auditing, and investigative skills to uncover the truth behind financial discrepancies.
A forensic audit is a detailed examination of a company’s financial statements, transactions, and records to detect and investigate potential financial malpractices. It’s a comprehensive review of financial data, often conducted in response to suspected fraud, corruption or other financial irregularities.
Forensic audits can be conducted on various types of organizations, including corporations, non-profits and government agencies.
Importance of Forensic Audit:
Forensic audits play an integral role in the regular corporate affairs like:
Detecting Financial Crimes: Forensic audits help identify and investigate financial irregularities, such as embezzlement, money laundering, or accounting fraud.
Preventing Financial Losses: By detecting potential fraud early, companies can take steps to prevent further losses and protect their assets.
Ensuring Regulatory Compliance: Forensic audits help companies comply with regulatory requirements and industry standards.
Protecting Stakeholders’ Interests: Forensic audits provide stakeholders, including investors and shareholders, with assurance that financial statements are accurate and reliable.
Techniques Used In Forensic Audit:
Forensic auditors use various techniques to uncover financial irregularities:
Document Examination: Reviewing financial documents, such as invoices, receipts, and bank statements.
Data Analysis: Analyzing financial data to identify trends, anomalies, and potential red flags.
Interviews and Interrogations: Conducting interviews with key personnel and suspects to gather information.
Digital Forensics: Examining digital evidence, such as emails, computer logs, and other electronic data.
Surprise Audits: Conducting unannounced audits to detect potential fraud or irregularities.
Skills Required for Forensic Audit:
Forensic auditors need a unique combination of skills, including:-
Accounting and Auditing Expertise: Knowledge of accounting principles, auditing standards and financial regulations.
Investigative Skills: Ability to analyze data, identify patterns, and follow leads.
Communication Skills: Effective communication and interviewing skills to gather information and present findings.
Analytical Skills: Ability to analyze complex financial data and identify potential irregularities.
Types of Forensic Audits:
1. Fraud Audit: Focuses on detecting and investigating financial statement fraud, asset misappropriation and corruption.
2. Compliance Audit: Examines an organization’s compliance with regulatory requirements, industry standards and internal policies.
3. Operational Audit: Evaluates an organization’s operational efficiency and effectiveness, identifying areas for improvement.
Skills Required for Forensic Audit:
Forensic auditors need a unique combination of skills, including:
1. Accounting and Auditing Expertise: Knowledge of accounting principles, auditing standards, and financial regulations.
2. Investigative Skills: Ability to analyze data, identify patterns, and follow leads.
3. Communication Skills: Effective communication and interviewing skills to gather information and present findings.
4. Analytical Skills: Ability to analyze complex financial data and identify potential irregularities.
Strategic Procedure To Execute A Forensic Audit:
1. Planning: Defining the scope and objectives of the audit.
2. Evidence Collection: Gathering financial data, documents and other relevant documentary evidence.
3. Strategic Analysis: Examining and analyzing the evidence to identify potential irregularities.
4. Reporting: Presenting findings and recommendations to stakeholders.
5. Follow-up: Monitoring the implementation of recommendations and ensuring compliance.
Bottomline:
Forensic audit is a powerful tool for uncovering financial irregularities and detecting potential fraud. By combining accounting, auditing, and investigative skills, forensic auditors play a crucial role in protecting companies and stakeholders from financial malpractices.
