Forensic Auditing

Forensic Auditing

FORENSIC AUDITING

As stated by Gordon Brown, the former Prime Mister of the United Kingdom, “what the use of fingerprints was to the 19th century and DNA analysis was to the 20th century, forensic accounting will be to the 21st century”. When people first see the word “forensic”, they naturally categorize it into a science-related field. According to Webster’s Dictionary, the term “forensic” is defined as “belonging to, used in, or suitable to courts of judicature or to public discussions and debate”. Therefore, forensic accounting is generally defined as relating and applying financial facts to legal problems (Singleton and Singleton 12).

Forensic accounting consists of a combination of the techniques that are used in accounting, auditing, and investigative work. The focus of this paper is on the concept of forensic auditing; however, forensic auditing cannot be fully understood without incorporating all of the facts about forensic accounting. Most situations that involve forensic auditing will deal with proposed fraudulent activities, but there are some cases that may deal with non-fraudulent activities, such as settlements of monetary disputes (“Student Accountant”). Throughout this paper, we will discuss, in detail, the profession of forensic auditing and forensic accounting in relation to fraudulent activities.

What is Forensic Auditing?

Forensic auditing and financial auditing are not related in any way; rather, they have their own distinct objectives that are set to achieve different goals. Forensic auditing can be defined as “the process of detecting, preventing, and correcting fraudulent activities” and focuses on establishing an environment that will help to encourage the detection and prevention of these fraudulent activities (Singleton and Singleton 14-15). Thus, forensic auditing focuses on the strength and effectiveness of a company’s internal controls while determining any weaknesses that may affect the system later on. Needless to say, forensic auditing is not concerned with providing opinions on whether or not the financial statements of a company fairly state their position or if assurance is provided to the general public. Forensic auditing concentrates on detecting any fraudulent activities that are asset-oriented, in which, are typically carried out for a personal gain (Barnes). The reason why there is a need for both forensic auditing and financial auditing is because the scope of financial audits will rarely uncover these fraudulent activities. Since the auditor’s main concern is to issue an opinion on whether or not the financial statements are fairly presented and are in accordance with Generally Accepted Accounting Principles (GAAP), the likelihood of discovering fraud, under these circumstances,