Forensic audits support corporate-fraud probes and IBC cases but still lack enforceable standards

Subscribe to enjoy similar stories.Forensic audits have gained significance in today’s world of business as they serve as a useful tool for commercial lenders to investigate fraud by borrowers and/or identify other deep-seated financial irregularities. Forensic auditors are also employed by resolution professionals to report on preferential, undervalued, fraudulent and extortionate (‘PUFE’) transactions for adjudication under India’s Insolvency and Bankruptcy Code (IBC). While there is no single universal definition, several globally recognized organizations have provided widely accepted definitions (and norms) of forensic auditing.

A forensic audit can broadly be described as a specialized exercise that blends accounting, auditing and investigative skills to examine financial information for use inter alia in legal proceedings. Its key elements are the purpose (example: to probe an alleged fraud), methods employed (accounting, auditing, investigation and legal knowledge) and the outcome (evidence gathered for the legal process). Given the nature of the work, forensic audits are conducted globally by teams of professionals from diverse backgrounds, including accounting, auditing, law and information technology.

The absence of those skills may adversely affect the ability to gather and evaluate evidence, apart from the analysis and overall quality of work, ultimately affecting the reliability and efficacy of forensic audit reports. Casual narratives often blur the distinctions between forensic, financial and internal audits. These are not the same, just as civil, criminal and commercial laws are not.