Forensic and Financial Audit: Key Differences
Every firm irrespective of its nature and size has to evaluate its current position in the market, in order to assess if it is moving on the right path. For gathering deep knowledge, the firms may conduct audits to ascertain a clear picture of the firm. Before conducting an audit, they will have to understand their needs for an audit and select the appropriate approach as per the needs, for that the firms must know the difference between forensic and financial audit.
What do you mean by a Financial audit?
A financial audit is mainly conducted with the main objective of evaluating the financial statements of the firm to know the prevailing financial position as well as to check the accuracy of the statements and records. The financial audit report provides an overall picture or a general idea of the company, it doesn’t provide any specific information of any kind of transactions or payments. Financial audits are mainly conducted on an annual basis and the audit report is also published to the public which can be used by the lenders, creditors, and investors to make investment decisions. Objectives of conducting a financial audit may also include the identification of any errors or fraudulent activities in the accounting statements.
What do you mean by Forensic audit?
A forensic audit is quite similar to a financial audit but the main point of difference between these two audits is that a forensic audit is conducted to gather the facts which can be presented in the court of the law. To conduct a forensic audit strict knowledge of the legal framework is required and the auditor must have perfect experience in internal auditing and external auditing. A forensic audit provides evident information about specific activities and departments of the firms which enable the court to decide whether there is any malpractice or fraud conducted in the firm. The auditor plays the role of an expert who explains all the details to the court in a free and fair manner.
Forensic Audit vs. Financial Audit
For the common man both the audits may seem to be similar but there are quite precise differences between these two audits which are listed below:
1. Mostly a financial audit is conducted annually or when the firm is in need of such audit but a forensic audit is conducted when there is any kind of investigation or when there is any sign of fraudulent activity or malpractices that may be illegal.
2. A financial audit helps the investors and lenders to know the current financial position as well as the current operations of the firm, they can use such reports in order to make future investment decisions whereas a forensic audit enables to identify or detect any malpractices or fraudulent activities that may be carried out in the firm.
3. A financial audit can be considered as a routine process that a firm must conduct at least once a year but a forensic audit must be conducted only when there is a need for it such as if there is any suspicion about any malpractices within a firm. Hence financial audit provides general information about the activities of a firm whereas a forensic audit provides specific and accurate information about the departments and other particular activities of the firm.
How to determine which type of audit does your firm need?
The following questions related to the respected audits must be kept in mind while making decisions regarding the selection of audit
- Do you want to assess the financial health of the firm and use it as an assistance to prospective investors?
- Do you want to analyze whether your firm is losing money or gaining adequate profits?
- Are you in need of any strong evidence or support regarding any court proceeding?
- Do you have any suspicions regarding any financial fraud or malpractices, or found someone conducting misappropriations?
The above difference may be helpful for a firm to take appropriate decisions regarding the audit they want to conduct. Before conducting an audit, the firms must go through all their requirements and must select the appropriate audit as per the need. Both the audits have their own unique uses which may be required only during specific circumstances.
How can CDA help you?
If you are looking for any kind of financial or forensic audit services then you can approach CDA as it provides all kinds of accounting and auditing services to its clients. CDA with its experienced and trustworthy team always ensures that their clients receive personalized services and assistance in their growth and development. For further queries feel free to approach CDA accountants & auditors in Dubai