Forensic Audit Procedures: 5 Main Procedures You Should Know


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

However, as said in our previous post, What is forensic accounting? The evidence gathered 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 a forensic audit are different from requiring a 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 are normally used to perform forensic audits:

1) Inquiries:

Forensic auditing procedures need to obtain evidence. Sometimes a forensic auditor requires the officers or personnel who are being investigated to be vacant temporarily. This will allow the auditor to inquire about the employees involved with the relevant transactions, enabling them to obtain more detailed information about the case.

This procedure also has its own purpose. It allows the auditor to obtain information from other related personnel and lets the auditor observe 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 notify if there is an opportunity that the fraud or any inappropriate could have happened. Yet, this procedure does require the corporation from the top management of the company. Or the people who have the right to force or encourage the target personnel to take leave.

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Otherwise, those target personnel will not take leave as they might know that other people who take over the job will temporarily know the mistake 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 should always pay extreme caution to ensure that the data they use for analysis is accurate before performing any analytical review.

Otherwise, the result of the analytical review could not be used as evidence, and it 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 that it could help the auditor 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 that deviation.

For example, suppose there is a concern about fraud related to salary expenses. In that case, the auditor will perform the analytical review on the salary expenses over the period by incorporating other financial data like the number of staff, output, attendant list, and other data to see if it is consistent. A detailed review should be performed if it does not flow consistently.

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3) Recalculations and Inspection:

Inspecting the data and the records is the most popular procedure for 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 loss should be or figure out which item is 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 do so. They need to perform actual observations. It is an essential 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 that they might need some specific information from the person involved in specific to procure like payroll accountant, which involves calculating salary. Moreover, the forensic auditors might inquire information from the low-level staff to the top level or external parties if required, like banks, suppliers, or investors.

5) Conclusion:

Forensic accounting or auditing procedures are similar to audit procedures, but the evidence needs to be more specific and realistic. It also involves planning, detailed testing, and conclusion, but the decision needs to be more precise, like the fraud or loss. Of course, forensic accounting also needs to issue the report, but this report will be used for legal purposes or dispute resolutions. This report is different from the audit report.

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