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What Is Forensic Audit? Understanding Forensic Audit with Practical Example

What is Forensic Audit?

A Forensic Audit is an evaluation process of a business or individual’s accounting transactions to uncover valuable information that comes in handy in court. Mainly in the financial sector, forensic auditing is an area of expertise. So, most prominent business organizations include a forensic audit department. Expertise in accounts and financial statements, and even professional understanding of the lawmaking context for forensic audits, are required during these audits.

Understanding Forensic Audit

Examinations into forensic auditing can reveal or verify a wide range of unlawful behaviors. Whether there's a chance that the data discovered will be presented in proceedings, a forensic audit is usually utilized rather than a regular audit.

The forensic audit is related to a standard auditing process in that it involves research, obtaining data, and drafting a document. Also, it includes the possibility of a proceeding. Both parties' representatives present proof indicating the act was either uncovered or denied, determining the number of unlawful actions. If the complaint is filed in front of a court, they disclose their findings to the defendant.

Individuals may gain expertise in a specific type of accounting as an internal auditor. For example, small business owners usually don't have a forensic auditor on-site. However, forensic audit units are found in most prominent companies.

Practical Example

On the advice of its finance director, MainRain Co. struck a deal with Blue Ink Inc. to deliver CPUs. When the deal was finalized, unfortunately, blue ink was unable to operate since its registration was temporarily canceled due to errors in Internal Revenue Service filing. Despite knowing that Blue Ink's registration was already canceled, MainRains' finance director recommended that the organization check them out since they were getting remunerations. Analyzing the interpersonal interactions linked and identifying a conflict of interest may reveal the hypothetical scenario of deception shown here, which can appear during a forensic audit. 

In Sentences

  • A forensic audit is a financial term that is widely used in prominent corporations.
  • Forensic audit is done to verify accounting transactions that can be useful in court if an unlawful event happens.


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