Forensic audits are used to address legal concerns (“forensic” literally means “suitable for use in a court of law”). This means that the information discovered during the audit may be intended to be used in court, usually in cases that involve insurance claims, personal injury claims, divorce and marital disputes, money laundering, and fraud. Forensic accounting may also be performed to reduce risk when entering into contracts or making major transactions.
Accountants that perform forensic audits are experienced in the field of accounting though they also use investigative skills to discover important information. The accountants that work with Roseville forensic audit accounting firm Cook CPA Group are able to help clients with all types of forensic audits. Get in touch with them soon to schedule a free consultation.
Understanding Forensic Audits
Forensic auditing accountants perform audits that reveal information that is used in a legal setting. The reasons that forensic audits are necessary are broad and the need for experienced forensic auditing accountants increases every day. The following is basic information about what forensic auditing is, what forensic auditing accountants do, and how forensic audits are different from internal audits.
When It Is Necessary for Accountants to Perform Forensic Audits
Accountants perform forensic audits when there is a legal issue connected to an entity’s finances. Often, the legal issue that needs to be investigated through a forensic audit is a court case. Forensic accounting is often a necessary part of calculating economic damages in cases of tort or breach of contract. Forensic accounting may also be necessary in court cases that involve tax fraud, securities fraud, insurance fraud, money laundering, embezzlement, and divorce cases and marital disputes. Forensic auditing may also be necessary in cases involving environmental damages, cybercrimes, and product liability.
When forensic audits happen in court, it may be necessary for an expert witness to explain what the audit means in simple terms, or for the accountant that performed the forensic audit to explain their findings themselves.
Aside from court cases, forensic auditing may be necessary in cases in which malevolent behavior within a company is suspected but has not been charged. Suspicious behavior that may require the services of a forensic auditing accountant includes: skewed account balances, failed reconciliation procedures, vendors and customers going unpaid, information theft, breaches of warranties, or stolen assets or other forms of defalcations. Forensic accountants may also be needed in cases of bankruptcy, reorganization, insolvency, or in cases of post-acquisition disputes.
Forensic audits are most frequently performed to find flaws within an organization, but they can also be used to enhance and strengthen good business practices that already exist. It’s common for companies to perform forensic audits as a form of quality control to ensure that the risk of malevolent activities occurring is low and that operations are running as smoothly as possible. Forensic auditing accountants can reduce risks and expose vulnerabilities by designing procedures for periodic audits, doing research on investment analysis, advising auditing committees, and creating fraud deterrence engagements.
What Accountants Do During Forensic Audits
During a forensic audit, an accountant will investigate discrepancies and analyze information. They will find facts from sources, question parties that may be guilty of financial crimes, check public records, analyze statements, review journal entries, trace the flow of funds, and examine financial records. To perform successful forensic audits, accountants must have a deep understanding of economic theories, auditing procedures, data management, data analysis, fraud detection practices, business administration, systems for reporting finances, and litigation processes.
In some cases, forensic auditing accountants may be called upon to serve as expert witnesses or consultants in courts, arbitrations, and meditations. They may be called on by insurance companies, adjustment firms, law enforcement agencies, and lawyers. Many accountants who perform forensic audits are skilled in both criminology and accounting. Most forensic auditing accountants hold specialized certifications in the field of forensic auditing, such as Certified Fraud Examiner (CFE), Certified Valuation Analyst (CVA), Certified in Financial Forensics (CFF), or Investigative & Forensic Accountant (IFA).
How is a Forensic Audit Different from an Internal Audit?
Internal audits are similar to forensic audits, which leads many people to misconstrue the vital differences between the two. Essentially, forensic audits and internal audits are different in that forensic auditing accountants investigate financial matters and then translate it for the use of laypersons while accountants that do internal audits are hired by companies to perform audits that verify their health.
Internal audits are performed when a company needs special expertise to complete projects, the company suspects that policies and procedures are not being followed, lapses in ethics or accuracy take place, risks increase due to changes in the company’s industry, or the company faces issues with compliance.
Whether a company chooses to use the services of an internal auditor or a forensic auditing accountant depends on their immediate needs and long-term objectives. In some cases, it may be necessary to use the services provided by both.
Work with Our Experienced Roseville Forensic Auditing Accountant
The accountants that work with Cook CPA Group are prepared to assist clients with all of their forensic auditing needs. Schedule a free and confidential consultation with the forensic auditing accountants from Cook CPA Group today.
