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With the lack of a standardized process for forensic accounting and investigation, the Institute of Chartered Accountants of India is developing the first-ever standards (Forensic Accounting and Investigation Standards). This move by the Institute of Chartered Accountants of India to have set standards comes at a time when instances of forensic accounting and investigation assignments related to ascertaining facts in corporate and banking frauds are rising.
Forensic accounting means the discovery and evaluation of the evidence by a professional. Also, to interpret and to communicate findings suitable for a court of law. Forensic accounting relates to the area of financial transaction and operational arrangements.
Investigation means a systematic and critical examination of facts, documents and records for a specific purpose.
The process to set these standards is as follows:
The principles governing the FAIS are as follows:
Possible Objective– To undertake discovery and identification of evidence and ascertainment of facts concerning the way in which transactions, funds, and balances have been dealt with.
Nature of Service-
Possible Objective– To examine facts and circumstances with a view to get evidence to support certain hypotheses about allegations and fraud to prove/disprove legal violation.
Nature of Service-
Possible Objective- To provide testimony in a court of law.
Nature of Service-
The following definitions have been used in this standard-
This standard applies to all FAI assignment where only a part of the assignment is outsourced to the professional.
Planning of the Forensic Accounting and Investigation Standards Assignment shall follow the below mentioned process-
Evidence means information, written or oral or contained in the electronic form taken upon by professionals to arrive at a conclusion. It includes information collected from underlying entity records and processes, information obtained from other sources, analysis of data, testimony, hearsay information, and information from other sources to the extent admissible by court.
Documentation means the totality of all evidences collected with a written record of work procedures performed and conclusions reached and reported.
The Forensic Accounting and Investigation Standards 330 provides for a phase-wise approach to execute Forensic Accounting and Investigation assignment.
In the first phase of preliminary review, the primary objective is to identify the irregularities and fraud risk factors associated with the assignment. In the second phase on detailed investigation, the primary objective is to establish the hypothesis and evidence credibility.
Below we have provided the indicative list of work procedures (Phase 1 and Phase 2)-
The objective of this standard on conducting interviews is to gather or elicit information and collect evidence to achieve engagement objectives. It may be noted that interviews shall be conducted only after due planning and preparation. The interviewer should develop a methodology which comprises of certain essential steps to conduct the interview in an effective manner. Confidentiality should be maintained regarding the details of the interview and its outcome.
Review means the examination of the planning and work procedures, evidence collection, etc.
Supervision means the oversight of the activities done by the staff and overall guidance to the team for objectives attainment.
The main objective of this standard on Review and Supervision is to ensure that work procedures are performed well in line with the terms of engagement and applicable regulations. Also, to ensure that the process of gathering evidences, information, and data is comprehensive and reliable.
According to the Institute of Chartered Accountants of India, the Forensic Accounting and Investigation Standards would be helpful to law enforcement agencies, corporate, banks, and other stakeholders to appreciate the common practices of performing Forensic Accounting and Investigation.
Read our article:All about Forensic Audit of a Company in India