Forensic Accounting

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In today’s fast growing business world, it is necessary for an organization to evaluate its systems, internal control procedures and to analyze the risks involved to ascertain appropriate implementation and working of its processes. The organization must also identify, record, settle, extract, sort, report and verify past financial data. With increasing number of frauds within organizations, the regulatory framework has also been enhanced with introduction of Corporate Governance, Clause 49, SOX and ISA 240. Companies thus need to use intelligence gathering techniques and accounting / business skills to develop information and opinion on the above due to which Forensic Accounting is gaining more and more importance. Thus Forensic Accounting certainly provides a Value Addition to the business.

This research paper shall discuss the Conceptual Framework which may be followed while dealing with Forensic Audit and the Critical requirements for a successful investigation like Confidentiality, Investigative Expertise, Industry Expertise, Multi Location Considerations, etc. It shall give an insight into the key points that need to be considered while conducting a Forensic Audit like maintaining an attitude of professional skepticism, obtaining information to identify risks, evaluating the entity related controls, designing and performing audit procedures, obtaining written representations from management relating to fraud, communicating with management and the audit committee, etc. It shall also deal with the proposed Fraud Risk Management Strategy along with the Key Areas of Concern like Code of Ethics, Risk Management, Effective Controls and Audit & Fraud Response Plan.


Forensic Accounting is the use of intelligence gathering techniques and accounting / business skills to develop information and opinion. It is the action of identifying, recording, settling, extracting, sorting, reporting and verifying past financial data or other accounting activities. It is basically the use of accounting for legal purposes.


In February 2002, ASB issued Fraud Exposure Draft. In October 2002 ASB issued SAS 99, Consideration of Fraud in a Financial Statement Audit. All Big 4 chose to move towards early adoption of new Fraud Auditing Standard (for audits ending after 15 December 2002). Implementation of SAS 99 was made necessary for all organizations seeking an audit opinion under Generally Accepted Auditing Standards (GAAS) as issued by the American Institute of Certified Public Accountants (AICPA).


SAS 1 : The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud

SAS 99 establishes standards and provides guidance to auditors in fulfilling that responsibility, as it relates to fraud, an audit of financial statements conducted in accordance with generally accepted auditing standards


Fraud is an intentional act that results in a material misstatement in the financial statements that are the subject of an audit. .It is generally defined by the courts as an intentional misrepresentation that was properly relied upon by the plaintiff and caused the plaintiff damages. It is a deliberate deceit which is planned and executed to deprive an individual of property, money or any other valuable security. Fraud must be committed with intent and includes actions of misrepresentations and/or acts of omission.

Diagram 1: Fraud and the Fraud Triangle


Misappropriation of assets involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts....
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