Forensic Accounting

Forensic accounting procedures vary depending on the client and specific reason for the audit. For example, to ensure all company sales dollars are legitimate, auditors strategically examine individual receipts to verify reported gross sales. Over-statement of income becomes the subject of a report stating the methodology of the strategic sample tests performed, the client/customer contact results, an estimation of the adjusted sales levels, verification of cash received and outstanding accounts receivable, and conclusions about the actions resulting in the discrepancy. These reports are structured in such a way as to be used as evidence in a civil or criminal proceeding.

While critically important for public companies, smaller, private businesses are responsible for protecting their investors as well. In addition to verifying bank account balances, assets, sales recordings, cash flow and all other paper trails, forensic auditors "read between the lines," examining individual original source documents and questioning their validity to learn whether the company's financial statements are fairly presented for informed investor decisions. Auditors examine discrepancies by interviewing company personnel and executives to learn about material differences in company valuations.

While the courts, not auditors, determine the existence or absence of fraud, forensic accounting procedures attempt to uncover irregularities that indicate the presence of willful misleading activities. Forensic auditors track some transactions from inception to completion, including verifying each step with the individuals (customers and employees) involved. Should they find some company policies and procedures that might permit future fraudulent activities to go unnoticed, they will recommend specific, tightened controls to lessen the risk in the coming fiscal period.

Unlike standard CPA audits, forensic accounting examinations require the use of language and structure that detail auditor findings acceptable to the court system. Just as the police and legal community build their cases in a commonly accepted series of steps, forensic accounting report procedures follow similar techniques. Whether intended for use in civil or criminal litigation, forensic accounting reports contain all the pertinent details that prove the auditor's conclusions.