A forensic audit is the kind of financial information investigation service provided by professional forensic accounting firms which are normally required by entities as the result of legal purposes.
A forensic audit is normally required to have many skills and backgrounds that add up to the auditing and accounting skill. In general, a forensic audit needs both accounting skills and auditing skills. This is because the works they perform are related to investigations on financial reporting.
To perform an investigation on financial statements as well as financial information, the forensic auditor needs to deeply understand how accounting record is performed as well as accounting treatments from the normal accounting treatment to the complex accounting treatment.
Because fraud over financial reporting is normally involved the critical process as well as critical treatment.
In addition to the accounting and auditing skills, forensic auditors also need strong analytical skills which are very important for performing analytical reviews on financial transactions. This is sometimes called investigation skill.
Since the report issued by forensic audit mostly use for court purposes, most of them are normally have a background in law. This kind of background helps them ease their works.
Forensic audit services normally required a license from the local authority to be able to offer the services and sometimes the license was obtained along with audit and assurance services. This is the reason why some auditing firms also offer forensic audits.
Forensic Audit Investigation Process:
The process of performing a forensic audit is not much different from the process of audit on financial statements. Auditors need to prepare proper planning including before acceptance, investigation plan, substantive investigation procedure, as well as reporting.
Before accepting the engagement, the forensic auditing service providers need to ensure that the firm has sufficient resources with high competency. As mentioned above, auditors need to have three competency skills.
Scope of audit and purpose of engagement should also be checked with the client. This is to avoid the delivery of services below client expectations.
The firm might also need to review the conflict of interest whether providing forensic audit could make the potential conflict of interest or not especially with audit services.
This is because some audit firms also offer both audit services as well as forensic audits.
If both services are provided, the firm needs to make sure that guidance is properly used to assess the seriousness of conflict as well as the way to minimize it.
The fee is also part of the factor that could potentially affect independence. The professional fee should be charged based on the work performed.
Planning for investigation:
Once service is assessed and accepted, the forensic auditor needs to perform an investigation. The planning of forensic audit is not much different from planning on the audit of financial statements.
At the planning stages, the auditor needs to identify, assess, and document certain things. For example, the nature of fraud cases by obtaining the relevant information includes people who might be involved, the nature of losses, as well as when the case happened and how long. The auditor should also quantify the financial losses that cause by the case.
Since the reports will be used by the court, the evidence obtained and used to support the case must be clear and strong.