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When and Why Does Your Business Need Forensic Audit ?

In the last 10 to 15 years, forensic audit practice has evolved to cover a broad spectrum of activities. Forensic audits define various investigative work to assess an entity’s fraudulent financial affairs. They are likely similar to providing evidence for auditing the client’s financial information.

The government of India has started adopting highly collaborative approaches to address various challenges like fraud, deceit, and financial misappropriation to secure good governance among businesses.

What is the Significance of Forensic Audit?

Forensic Audit, an investigative audit, is used to evaluate and examine a company’s financial records, transactions, and systems. It ensures the evaluation of the firm’s or individual’s financial information to prosecute a party for fraud, embezzlement, or other financial claims.

Unlike traditional audits, the main objective of conducting a forensic audit is to ensure compliance with the investigation standards specifically designed to determine the nature and extent of the fraud.

Why Forensic Audit Gained Prominence in India?

Since the dawn of the 21st century, forensic audits have started gaining prominence in India’s advanced economy. A consistent rise is observed in the top leadership searches of corporate governance carried out by a forensic audit, which rationalizes the investigation and independent examination of the specialized fields of accounts, financial frauds, litigation support, legal proceedings, etc.

Our strategic approach, which provides advanced forensic techniques, ensures forensic audit and investigation excellence to protect the financial integrity of any irregularities within your business organization.

Key Reasons Your Business Needs Forensic Audit

Conducting forensic audits by businesses ensures securing the company’s financial health through prevention, regulation, and penalizing financial frauds and scams. Some of the key reasons your business needs a forensic audit in India are as provided below:

• Investigation of fraud
• Analysis of financial information/ statement
• Identification of the culprit behind the fraud
• Assessment of any financial risks
• Arrange or gather evidence of fraud.
• Tracking suspicious transactions
• Secure regulatory concerns raised by auditors
• Manage unexpected financial distress.
• Enhance corporate governance
• Maintain business goodwill in the market.
• Examination of accounts, statutory records, documents & vouchers

When Your Business Needs Forensic Audit?

Businesses must opt for a strategic approach to detect financial fraud. The companies need to conduct the forensic audit in some of the following circumstances as provided below:

Detection of Suspected Corruption

The auditors must conduct a forensic audit of the company’s financial health to investigate and detect any suspected corruption like conflict of interest, bribery, and extortion. The auditors must look after the following situations before investigating corruption in the corporates:

Conflict of Interest

Conflict of interest occurs when an individual’s interests interfere with the organization’s decision-making or performance. Generally, fraudsters use their influence to enjoy personal gains detrimental to the company’s interests.

Bribery

Bribery occurs when fraudsters offer money to get things done or influence a situation in one’s favour. The ultimate need for forensic audit arises when bribery is conducted on behalf of a company employee.

Extortion

Extortion occurs when a B2C company demands money to award a contract to address the corruptive act of extortion committed within the company; a forensic audit is conducted.

Detection of Asset Misappropriation

The auditors must conduct forensic audits to detect and address the most prevalent form of fraud, i.e., criminal misappropriation of assets. It includes misappropriation of cash, payments made to non-existing suppliers/ employees, misuse of assets, theft of inventory, and creating fake invoices. 

Some crucial asset misappropriations that auditors are required to address are embezzlement of company funds, payroll fraud, theft of supplies, and creating fake payments under the company’s name.

Detection of Financial Statement Fraud

The auditors must conduct a forensic audit to detect the different types of company financial statement fraud or any misrepresentation of financial statements. Some of the financial statement frauds within the company must be mandatorily reported through forensic auditing of the following frauds:

• Reducing expenses or overstating revenue values;
• Showcase a false high growth rate;
• Creating false balance sheet statements.

Legal Disputes or Litigation

The forensic audit is conducted to provide requisite financial evidence and expert testimony regarding the legal dispute or litigation. Simply, it is undertaken to prosecute a party for fraud, embezzlement, or other financial claims.

Mergers and Acquisitions

Forensic audits are conducted to gather financial health information in cases where businesses are often engaged in mergers and acquisitions. The forensic audit’s main intention is to collect the uncovered liabilities and risks associated with the mergers and acquisitions of the target entity.

Due Diligence Investigation

The forensic audit is required to investigate the target company’s financial robustness and integrity, facilitating well-informed decisions. The legal due diligence investigation and assessment of the company’s financial robustness are crucial for contemplating potential investments.

Ensure Regulatory Compliance

A forensic audit is required to ensure industry-specific regulatory compliance and prevent financial misconduct within businesses.

Benefits of Using Forensic Audit for Your Business

The forensic audit plays a crucial role in safeguarding and enhancing the financial stability of the business entity. Some of the benefits of using forensic audit for your business are as explained below:

Reduces Potential Loss

The forensic audit ensures that potential losses are reduced due to fraudulent activities in the workplace. Simply, it assists companies in identifying and minimizing/ reducing any potential financial loss caused by business identity fraud.

Strengthen the Internal Policy of the Business

Identifying the business’s weak points through forensic audit ensures the strengthening of an internal policy for establishing a solid internal control mechanism.

Avoidance of Legal Disputes

The forensic audit avoids any pre-existing legal disputes by providing crucial evidence to support the client’s base. Simply, it assists companies in preventing or resolving fraudulent activities before they initiate legal issues.  

Improves Goodwill of the Business

The forensic audit improves and protects the business’s goodwill against any false or exaggerated illegal activities undertaken on behalf of the company. The forensic investigation provides accurate information, which will benefit the reputation and confidence of the investors.

Ensures Investment Decision Making

Forensic auditing and accounting, which analyze the financial standing and weaknesses of the business, ensures reliable investment decision-making on behalf of the investors. The reports provided by the forensic accountants serve as an informative guide for potential investors.

Conclusion

Forensic audit is a powerful tool that protects businesses from financial misconduct that hampers informed decision-making. It ensures tracking challenges like a lack of skilled professionals, limited awareness among organizations, and the need for enhanced collaborations between regulators, law enforcement agencies, and forensic auditors.

Protect your business from fraud and financial missteps. Visit our website www.enterslice.com today for forensic audit services to secure your financial integrity.

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