Forensic Auditing: A surgical strike on financial malfeasance

Umpteen numbers of accounting irregularities and economic scams have churned out business entities, national and global markets many times. The increasing number of Financial Frauds and White-Collar Crimes has hit most of the Indian Companies, Banks, Public Sector and Governments and the increasing trend has become a serious area of concern. These have become a real threat against the development agenda for developing and emerging nations. Now the emerging modus operandi of such frauds is giving serious concerns to all the stake holders involved. Forensic auditing is focused on the recognition, understanding, and communication of the evidence of underlying strategic economic and reporting events. This paper is a theoretical research compilation which considers the roles of forensic auditors in combating fraudulent activities, distinction of forensic auditor and statutory auditor and the statutory requirement of the audit. Forensic audit is used wherever an entity gets a financial dent. Therefore, it is used in cases of suspected embezzlement or fraud, to determine tax liability, to investigate allegations of bribery, among other reasons. Forensic audits are performed by the professionals who have competence in both, criminology and financial accounting as well. An expert, who dux in money trail, keeps track of financial malfeasance in actual position statements and income statements. Forensic Auditing is a concept that comprises three key ingredients: thinking forensically; forensic audit procedures - both proactive and reactive and appropriate use of technology and data analysis. Techniques and tools adopted to do this audit involve financial comparative statements analysis, ratio analysis, system analysis and many others.