Forensic Auditing Show

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This PPT gives general understanding and clarifies the basics of Forensic auditing

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Forensic Auditing Show

  1. 1. Forensic Auditing<br />Prepared by:<br />VikasKalyanshetty<br />ACA, B Com<br />Associate Finance <br />Team: Systems & Process Improvement<br />Corporate Accounting Group<br />Infosys Technologies Ltd, Bangalore<br />1<br />
  2. 2. Contents<br />Meaning of Forensic<br />Forensic Auditing/Accounting<br />Qualities of a forensic accountant<br />Purpose<br />Broad Categories of Frauds<br />Broad Stages of Investigations<br />Fraud Symptoms<br />Specialized Forensic Audit Techniques<br />General Questions that are answered<br />Statutory Vs Forensic Audit <br />Conclusion<br />2<br />
  3. 3. Forensic Meaning<br />Dictionary: Relating to, used in, or appropriate for courts of law or for public discussion<br />Having Legal identity<br />Forensic reports can be presented as an evidence in the court of law<br />E.g. Forensic Science<br />3<br />
  4. 4. Forensic Auditing/Accounting<br />Often associated with fraudulent activities<br />Also performed in non fraudulent cases<br />Forensic auditing aims at legal determination<br /> of whether fraud has actually occurred<br />Investigating into Financial Records<br />Forensic Auditing and Accounting are same<br />4<br />
  5. 5. Required Skills of a Forensic Accountant – A Pizza!<br />Base of Pizza: Accounting Knowledge<br />Middle Layer: Dispersed knowledge of Auditing, internal <br /> controls, risk assessment and fraud detection<br />Toppings: Basic understanding of the legal environment<br />The Cherry on the toppings: A strong set of <br /> communication skills, both written and oral<br />5<br />
  6. 6. Purpose – In Case of Alleged Fraud<br />Discover if there is a fraud (Focus – White Collar Crime)<br />Identify those involved<br />Quantify the monetary amount of fraud<br />Present Findings to the client/court<br />6<br />
  7. 7. Three Broad Categories of Frauds<br />Corruption<br />Asset Misappropriation<br />Financial Statement Fraud<br />7<br />
  8. 8. 1. Corruption<br />Conflicts of Interests<br />Bribery<br />Extortion<br />8<br />
  9. 9. 2. Asset Misappropriation<br />Cash Theft<br />Fraudulent Disbursement<br />Inventory Frauds<br />Misuse of Assets<br />9<br />
  10. 10. 3. Financial Statement Fraud<br />Material misstatement in Financial Statement:<br />Deliberate Falsification of Accounting Records<br />Omission of Transactions/Balances/Disclosures etc.<br />Misappropriation of Financial Reporting Standards.<br />10<br />
  11. 11. Satyam Modus Operandi<br />7,561 Fake Invoices<br />Inflated receivables<br />Fake Fixed Deposit Receipts were printed. <br />Bank Guarantees were manipulated<br />Fake Bank balance statements of ICICI, Citibank, HSBC and BNP Paribas<br />11<br />
  12. 12. Facts and Figures of SATYAM Fiasco!<br />12<br />
  13. 13. Broad Stages of Forensic Audit<br />13<br />
  14. 14. 1) Accepting the investigation<br />1) Forensic accountant must ensure whether their firm has <br />Necessary skills and <br />Experience<br /> to accept the work<br />2) Ideally Statutory Auditors should not accept Forensic auditing assignments<br />14<br />
  15. 15. 2) Planning the Investigation<br />Objectives of the investigation includes:<br />Identify type of fraud<br />Identify Fraudsters<br />Quantify the loss<br />Gather Evidence<br />Provide advice to prevent the reoccurrence<br />15<br />
  16. 16. 3) Gathering Evidence (Techniques)<br />Testing internal controls <br />Use analytical Procedures<br />Apply CAAT<br />Discussion and Interviews with the employees<br />Substantive techniques such as Reconciliation, cash counts and review of stocks<br />16<br />
  17. 17. 4) Reporting<br />Report contains:<br />Findings/Observations<br />Summary of Evidences<br />Amount of loss<br />How fraudsters set up fraud scheme and which controls were circumvented<br />Recommend improvements of controls<br />17<br />
  18. 18. 5) Court Proceedings<br />Members of investigation team are involved<br />Evidence gathering is presented<br />Simplify technical terms<br />Forensic Accountants do not testify that fraud has occurred but only present evidence<br />18<br />
  19. 19. Fraud Symptoms<br />Unusual and unexpected <br /> changes<br /> Two types:<br />Financial Record Related: Document analysis e.g. Handwriting/ Ink Analysis/ Trend analysis<br />Person Related: Personality/Life style changes/ Behavioral Changes<br />19<br />
  20. 20. Specialized Forensic Audit Techniques<br />Supervising<br />Comparing actual with expected<br />Search warrants<br />Surveillance<br />Anonymous complaints/tips (most popular)<br />Interview & interrogation<br />Verbal Cues<br />Non Verbal Cues<br />20<br />
  21. 21. General Questions that are answered:<br />How long fraud was carried?<br />How was it conducted and carried?<br />What was the suspects motive & opportunity to commit fraud?<br />Whether it involved collusion?<br />Are there any physical evidence at the scene of crime or in the documents?<br />What comments are made by the suspects during interrogations?<br />Were there any attempts to destroy evidence?<br />21<br />
  22. 22. Statutory Vs Forensic Audit<br />22<br />
  23. 23. Conclusion<br />Forensic Audit is a specialist type of engagement: Auditor Cum Investigator<br />Requires skilled and experienced team<br />Team should be comfortable with appearing in court proceedings<br />Management of IT companies must carry out<br />Employees should be made aware before such audit to co operate with the team<br />Exception to the clause: ‘auditors can be watchdogs and not blood-hounds’ <br />23<br />
  24. 24. References:1) Google2) American Journal of Business Education3) Article Published in The Chartered Accountant by S Vasudevan<br />24<br />

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