Difference between Forensic Accounting & Auditing

Compiled By: Dr. Megha Shah

Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University

 What distinguishes a forensic audit from a normal audit?

Forensic audit is issue based or related to a specific problem

It has several components and could include any or all of the following:
- Financial and accounting review
- Digital forensic analysis
- Field investigations
- Data mining at an advanced level
- Application of Interviewing skills
- Technical assistance such as handwriting, specimen signatures, QC evaluation etc

Audit relies on documentary evidence, whereas a forensic audit actually examines the reliability of documentary
evidence itself
Forensic accounting
Compiled By: Dr. Megha Kemphasizes the needGLS
Shah, Faculty of Management, to University
look for other evidence available as well.
 Questions Generally raised by Forensic
Auditor
• Unlike the financial auditor, the forensic auditor asks the following questions:
(A) Where are the weakest links in the system chain of controls?
(B) how are offline transactions handled, and who authorizes them?
(C) what possible deviations can occur in the system different from conventional good accounting
practice?
(D) what simple way exists to compromise the system?
(E) what is the nature of work environment in the organization?
(F) how can higher management bypass the control systems in the organization?
Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University
 Auditors Forensic Accountants/Auditors
Auditors examine the Financial statements in the Forensic Accounting Investigators deal with
accordance with GAAP fraudulent Financial reporting and misappropriation
of assets
The audit opinion is on the financial statements Forensic accountants, on the other hand, usually
taken as a whole. relates awareness of specific irregularities

Auditors' work serves public interest Forensic accountants' work, on the other hand,
serves their interest of the parties that hire them
Auditor's work stands on its own A Forensic accountant's work supports the work of
the legal counsel or the board.
Auditors express an opinion forensic accountants also recommend changes
Auditors are concerned with errors and forensic accountants are concerned with distinction
irregularities; between errors of judgment & deliberate
misrepresentations
Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University
 Auditors Forensic Accountants/Auditors
The relationship between the auditor and the client is the relationship between the forensic accountant and
one of openness and full sincerity the party investigated is usually adversarial

Audit work usually does not disrupt work in case of forensic accounting investigations, the
environment of the client work can be disruptive

Clients always have a full understanding of the forensic accounting investigations, the party
scope and objectives of the audit investigated may not have such understanding of the
work

Audit work is usually coherent, coordinated, and Forensic accountant's work can be messy with many
ancient blind alleys

Auditor determines the nature, scope, and extent of Forensic accounting investigations, they are
the audit determined by the client
Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University
 Auditors
Auditors meet regularly on schedule with the audit
committee and on an as needed basis with the
executive management
Auditors often use attribute sampling for tests of
control and variable sampling for substantive tests
(of transactions)
Audit work is not protected under attorney-client
privilege
Auditors must work without protections
At the end of the audit there is an opinion
Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University
Forensic Accountants/Auditors
the forensic accountants have continual access to
executive management and frequent but irregular
contacts with the audit committee
Forensic accountants are more likely to use
discovery sampling and unit sampling
Most forensic accounting work is structured to be
done in a privileged environment
Forensic accounting work usually has hold-
harmless protections
At the end of a forensic accounting investigation
there are findings and recommendations
 How it differs from Statutory Audit

Compiled By: Dr. Megha K Shah, Faculty of Management, GLS University