Forensic Accounting Audit Procedure

Forensic Accounting
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Hira Aziz
Entrepreneur, Pakistan

Forensic Accounting Audit Procedure

🔥NEW A forensic accounting audit is different from a financial statement audit because it requires an in-depth analysis of complex financial matters, proper interpretation, and careful preparation for collecting support trail evidence that will be presented in court proceedings.

The procedure of forensic accounting audit has three main steps:

Forensic investigation
Report preparation and submission
Litigation

Forensic investigation
Forensic investigation is the first step of a forensic accounting audit. Forensic accountants perform a forensic investigation to collect relevant evidence in the form of differences that incite the wake-up calls regarding suspicious fraudulent activities. This is done when there is a need for the quantification of assets. Practical steps for forensic investigation include:

Planning stage
In the planning stage, investigators first plan their work. Plan audit methodology and objectives to be achieved. This includes Identification of the type of fraud, how it was operated, number of persons involved (fraudsters), and total financial loss amount. They are responsible for collecting valid evidence for court proceedings, and to recommend the best advice for preventing the recurrence of fraud.

Evidence Collection
We can collect evidence using the following techniques:

Perform a trend analysis over time and over different business segments.
Conduct in-depth interviews and discussions with employees.
Use of computer-assisted audit techniques- identification of time and location alteration.
Identification of weaknesses through using testing controls.
Use of substantive techniques- reviews of documents, cash counts and reconciliation of accounts.
A Review Process

The review process requires conducting a background investigation of business owners, employees, competitors, and related involved parties. The information could be gathered through these documents:

stock trading activities
Insider trading activities
civil and criminal records
corporate and partnership records
real and personal property records
Financial information

Staff interviewing process
The principal purpose of evidence collection is to gather facts and information from witnesses. The staff interviewing process remains continuous throughout the investigation. Forensic investigators are fact-finders. They lose their objectivity if they seek confession from witnesses during the investigation.

Report preparation and submission
Reporting is the second step of a forensic accounting audit. A forensic accountant will present a summary of their findings which includes the fraudulent case brief, summary of collected evidence, the person responsible for the fraud, amount of loss, pointing out red flags, and steps to improve internal control and security.

Litigation
Litigation is the last step. Forensic accountant participates in the incident's court proceedings to present their investigated findings in an understandable manner by explaining and interpreting financial documents.


Sources:
Forensic accounting (study notes) Module-6
Article : Forensic Accounting https://www.accaglobal.com/an/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/forensic-accounting.html.

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