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In today’s world, increasing white-collar crimes has led to the need for
bringing in the forensics to save a business from any mishap. Crimes that are
taking place using deceptive practices for financial gains are often tricky to
prosecute, as the executioner takes sophisticated and calculated steps to
ensure that their illegal activities are difficult to detect.
With the introduction of the definition of fraud in the Companies Act 2013, the concept of Forensic Audit in India as a practice and methodology has gained colossal importance and relevance in addition to the regular auditing techniques already in place.
Table of Contents
A forensic audit is the inspection of a company’s financial records to gather evidence for use in legal proceedings regarding any accounting frauds. The corporate veil is lifted while identifying the fraud and the persons involved. Audit skills have to be applied to determine legally if fraud has taken place. The steps of an investigation process include planning, review, and a report. In the planning stage, objectives such as – identification of fraud committed, since when is the scam happening, who is involved, how much is the financial loss, fraud prevention measures, etc. are set.
Audit Engagement is one of the
essential blueprints to be designed with the help of business owners and Audit
Experts. It helps in finding the key areas which need to be focused and further
work for excellent results. However, the forensic auditing is not the same as
financial audit or secretarial audit; in aspects of objective and procedure as
both differ long way. To support the success of the Indian economy on the global
platform under the realm of good governance, transparency, accountability, and
uprightness, the Forensic Audit has become the main indulgence in the corporate
Forensic audit in India extensively
has a crucial role in supporting the business enterprise for concentrating on
efficiency. On the larger parameters, Forensic audit as tool-mix of accounting
and investigation is serving all the five E’s of good governance and make the
corporates to grow and develop on the parameters of being Effective, Efficient,
Easy, Empower, and Equity.
Forensic auditors do not differ from
other legal professionals; They investigate accounting and different reliable
settings by combining their knowledge of accounts, law, finance, and investigating
skills to find evidence of corruption or financial crimes. The professional
goes beyond looking into the financial statements, which includes examination
and investigation, bringing out evidence, writing reports, understanding the
legal scope of the evidence, and ways to prove it in court. Starting from
collecting evidence to examining the shreds of evidence, later zeroing the
culprit behind the fraud to appearing in the court for submitted the testimony,
a forensic auditor plays a vital role as a part of his responsibility.
evidence gathered is in a manner that is usable in court. A report is then
produced with the findings of the investigation. Such findings may also be
presented in court. Process of conducting a forensic audit is outlined below:
Read More: An Overview of Forensic Technology Services.
Forensic reports deliver findings and recommendations of the forensic investigation conducted. Details regarding the causes, circumstances, illegal or potentially fraudulent activities. The Forensic audit was used wisely and significantly to reach the core of the fraudulent transaction. We will understand with the help of Nirav Modi and Punjab National Bank Scam. (A detailed analysis)
The present findings of the investigation are-
The Reserve Bank of India has looked
upon the deteriorating quality of assets and contrived forensic audit
obligatory for large advances and re-structuring of accounts. The Enforcement
Directorate (ED) and the Serious Fraud Investigation Office (SFIO) also stress
upon the need for forensic audit pertaining to the rise in money laundering and
willful default cases that is bothering the banking system.
Also, Read: USE of Artificial intelligence in Fraud, Misconduct Investigations.
Ramanan Murali is an innovative and industrious Legal professional, having a keen interest in the matters related to the Corporate Law. He is well-indulged in registration and compliance matters of NBFCs with the Reserve Bank of India. As a legal professional, he is zealous about analysing and understanding the actualities of White-Collar Crimes, Corporate Functioning and Indian financial sector.
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