Forensic Audit And Its Advantages

What Is Meant By A Forensic Audit?

Forensic audit is conducted in a firm for examining the financial statements and records and utilizing such audit reports as evidence in the court of law or for any kind of legal proceedings. The main objective of a forensic audit is to prosecute any party who is involved in fraud, malpractices, or any embezzlement. Forensic audits can also be conducted to regain public confidence which may be reduced due to false allegations imposed by other parties on the firm.

Why Is Forensic Audit Conducted?

The forensic audits are conducted for many reasons which include the following:

Corruption 

The auditor may investigate the firm to detect any kind of corruption or malpractices which may be similar to the following:

1. Conflict of interests: The fraudster may use his position to make unfair gains and he may try to influence others using his authority. For example, a manager may show partiality among his subordinates and he may provide more incentives and appraisals to the employee with whom he may have personal relations which is against the interests of the firm.
2. Bribery: The managers or any other parties may make unnoticed payments to external parties for getting things done, or the managers may receive such payments for which in return they may share confidential reports to outside parties, etc. These kinds of malpractices can be detected through a forensic audit.
3. Extortion: Some parties may threaten or force others to pay money in return for any contracts or some properties that may have very importance for the other firm. 

Asset Misappropriation 

This is one of the most common frauds to which an organization is exposed to. Asset misappropriation is concerned with utilizing the assets of a firm against its interests. It may include cash misappropriation, making fake invoices, payments to fake employees or creditors, misuse of firm’s properties, etc. this type of fraud and theft can be detected and the required actions can be taken to make good the loss incurred by the firm.

Financial Misstatement

This is another kind of malpractice which is concerned with making false financial statements and false reports in order to hide the facts regarding the operations and financial position of the firm. The firms may indulge in this kind of malpractice to maintain public confidence and to hide the adverse effects of market forces. 

What Are The Advantages Of Forensic Audit In UAE?

Let us go through some of the advantages of forensic audit:

1. Providing legal assistance: Forensic audit focuses on providing evidence for Legal proceedings, it assists in detecting the financial crimes within the firm and helps in avoiding huge losses related to the fraud conducted.  It helps to prove or disprove the allegation which is made against the firm.
2. Effective financial management: Forensic audit plays the role of a third eye because it always ensures that the firm’s assets are utilized solely for the benefits and requirements of the firm.  Forensic audit helps in avoiding frauds related to asset misappropriation and malpractices, because of its all-round investigation of the firm and its departments.
3. Solving disputes: Forensic audit can help in avoiding and solving contractual disputes and issues and it may provide the relevant information to the parties who may be reluctant to enter into the contracts with the firm. It may provide a transparent picture of the operations and management of the firm.
4. Increases public confidence and brand reputation: Some individuals may make false allegations against the firm which may reduce the firm’s goodwill and reputation. This may result in the decrease of public confidence and other parties may be reluctant to enter into contracts with the firm or invest in it, during such scenarios the firm can conduct a forensic audit and may provide an accurate report to the parties to avoid such misunderstandings and increase goodwill.
5. Reduction of losses: Fraud may result in huge losses which may affect a firm drastically. Forensic audit helps in detecting the fraud at an early stage and it assists to take correct measures for taking down such fraud activities.

How Can A Forensic Audit Help A Firm?

Telepeak was one of the most leading companies in UAE, the finance manager of Telepeak recommended the company to enter into a contract with Tech Inc for the supply of raw materials, but at that time Tech INC was not permitted to enter into any contract because it was facing a legal issue regarding the remittance of tax and it also didn’t comply with the tax laws, due to which its license was suspended. The finance manager of Telepeak was aware of these issues but still, he influenced the managers to enter into the contract because he was receiving commission for doing so. After a couple of months, the stakeholders and the managers realized that the contract which it entered with Tech Inc was void and the business which it conducted was also illegal. In order to investigate the reason and source of such fraud, the company decided to conduct a forensic audit through which they could get the evidence and identify the fraudster who was responsible for it.

When the report was presented the finance manager was held guilty for his deed and he was prosecuted in the court of law, with the help of the audit report which played the role of the evidence.

Through the above example, we can understand the importance of a forensic audit for a firm. It not only helps to prosecute the fraudsters but also to avoid the frauds from being conducted. A forensic audit report may show the red flags in advance, so the firm can manage and adopt the required control measure to tackle such issues.

How Can CDA Help?

Forensic audit requires highly talented professional experts who have adequate qualification and experience with regard to auditing and accounting. CDA with its highly skilled team members is one of the leading auditing companies in UAE which provide all the required service to its clients including forensic audits in a personalized manner. CDA is always ready to meet the challenges of its clients and help them to tackle it in the best way possible. To know more about our services please contact us.