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Advanced Auditing

Notes

Notes Generally, the auditors’ procedures for electronically published financial statements
should include checking the information by reviewing the process by which the financial
statements published form the manually signed accounts.

14.3.6 Forensic Accounting

Forensic accounting/auditing can be defined as accounting/auditing skills to situations that
have legal consequences.

Example: Forensic auditing is the investigation of a fraud or presumptive fraud with a
view to gathering evidence that could be presented in a court of law.

It is the specialty practice area of accountancy that describes engagements that result from actual
or anticipated disputes or litigation. “Forensic” means “suitable for use in a court of law”, and
it is to that standard and potential outcome that forensic accountants generally have to work.
Forensic accountants, also referred to as forensic auditors or investigative auditors, often have
to give expert evidence at the eventual trial. All of the larger accounting firms, as well as many
medium-sized and boutique firms have specialist forensic accounting departments. Within these
groups, there may be further sub-specialisations: some forensic accountants may, for example,
just specialise in insurance claims, personal injury claims, fraud, construction, or royalty audits.
Forensic accountants may be involved in recovering proceeds of crime and in relation to
confiscation proceedings concerning actual or assumed proceeds of crime or money laundering.
In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002.
Some forensic accountants are also Certified Forensic Accounting Professionals, Certified Fraud
Examiners, Certified Public Accountants, Chartered Accountants or ACCAs. Forensic accountants
utilise an understanding of business information and financial reporting systems, accounting
and auditing standards and procedures, evidence gathering and investigative techniques, and
litigation processes and procedures to perform their work.
Forensic accountants are also increasingly playing more proactive risk reduction roles by
designing and performing extended procedures as part of the statutory audit, acting as advisers
to audit committees, fraud deterrence engagements, and assisting in investment analyst research.
“While Forensic Accountants (“FAs”) usually do not provide opinions, the work performed and
reports issued will often provide answers to the how, where, what, why and who. The FAs have
and are continuing to evolve in terms of utilizing technology to assist in engagements to
identify anomalies and inconsistencies. It is important to remember that it is not the Forensic
Accountants that determine fraud, but instead the court.”
Since all professional accountants operate within a commercial legal environment, all
professional accountants are, in a sense, forensic accountants. What distinguishes forensic
accounting in common parlance, however, are the engagements. That is, when a professional
accountant accepts an engagement where they anticipate that their finding or analysis may be
subject to adversarial or judicial scrutiny or administrative review, the professional accountant
seeks a level of evidentiary detail and analytical precision which will be sustainable within the
legal framework of such scrutiny or review.
Forensic accounting is focused, therefore, upon both the evidence of economic transactions and
reporting as contained within an accounting system, and the legal framework which allows
such evidence to be suitable to the purpose(s) of establishing accountability and/or valuation.
Forensic accountants specialise in those types of engagements where there is a need for such

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