Overview:

Forensic audit procedures are not so much different from audit procedures. They are also performing important procedures to obtain the evidence include analytical reviews, inquiries, observations, recalculations, and inspection, etc.

However, as said in our previous post, What is forensic accounting? the evidence gathers from forensic accounting or auditing is normally used for legal purposes rather than the general purpose of auditing financial statements.

This is because the requirements to have the forensic audit are different from the requirement to have financial statements audit like a statutory or non-statutory audit.

Therefore, the procedure to obtain those evidence is more specific and fact rather than assumption.

Below are the important procedures that normally use to perform forensic audit:

1) Inquiries:

It is important for forensic auditing procedures to obtain evidence. Sometimes a forensic auditor requires the officers or personnel who being investigated to be vacant temporarily.

This will allow the auditor to have the inquiry the employees who involve with the relevant transactions, which enable them to obtain more detailed information about the case.

This procedure also has its own purpose. It is not only allowed the auditor to obtain the information from other related personnel but also let the auditor observed what wrong might have happened.

For example, once the officers investigating is on leave. Then his daily job is done by someone else.

During this time, the forensic auditor could be able to notify if there any opportunity that the fraud or any inappropriate could have happened. Yet, this procedure does require the corporation from the top management of the company.

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Or the people who have the right to force or encourage the target personnel to take leave.

Otherwise, those target personnel will not take leave as they might know that other people who take over the job temporarily will know the mistake that they have made.

However, the inquiry provides the information for the forensic auditor to have a better picture or understanding of the inappropriate might have happened so that they could perform an additional procedure to gather the fact.

The evidence from the inquiry might not be solid evidence to be basic for the conclusion.

2) Analytical Procedures:

In the analytical procedure, a forensic auditor before performing any analytical review should always pay very strong caution which to make sure that the data they use for analysis is accurate.

Otherwise, the result of analytical review could not be used as the evidence and its could be led to make a wrong conclusion.

However, sometimes the analytical review may not be used to gather data since the result from the analytical review is based on the best projection and estimate.

The most important point of this procedure is, it could help the auditor to see the trend or fluctuation of certain transactions; for example, sales or expense, so that the auditor will perform a detailed procedure to see or obtain the fact of that deviation.

For example, if there is a concern about the fraud related to salary expenses, the auditor will perform the analytical review on the salary expenses over the period by incorporate other financial data like the number of staff, output, attendant list, and others data to see if it is consistence. If it does not flow consistently, then a detailed review should be performed.

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3) Recalculations and Inspection:

Inspection of the data and the records is the most popular procedure to be used in gathering evidence regarding the forensic accountant’s job.

It just simply means collecting a sample of original invoices, receipts, and other important documents. Then, figure out how much the lost should be or figure out the amount of which item, in this procedure.

The performance of this procedure should be alight with the result of the analytical review and inquiry that the auditor already performs above. For example, a detailed review of salary expenses for the months or period that are not consistent with the other data or records.

4) Observations:

Before performing some specific testing of the cause, it is required to understand some specific procure or function, and to do so, they need to perform actual observations.

It is a very important part of the forensic auditors should not avoid otherwise the performance of other procedures like inspections will not run smoothly or naturally. 

Other important things are, they might need some specific information from the person who involves in specific procure like payroll accountant the one who involve with calculating salary.

Moreover, forensic auditor might inquire information from the low level of staff to the top level or from external party if required like banks, suppliers or investors.

5) Conclusion:

In summary, the forensic accounting or auditing procedures is similar to audit procedure, but the evident need to be more specific and realistic.

It also involves planning, detail testing, and conclusion, but the conclusion needs to be more specific like how much the fraud or loss.

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Of cause, forensic accounting also needs to issue the report, but this report going to be used for legal purposes or dispute resolutions. This report is different from the audit report.