Is Forensic Accounting a Winning Strategy over External Auditing in India: Review and Analysis

Is Forensic Accounting a Winning Strategy over External Auditing in India: Review and Analysis

Sidhartha Sharma

Department of Commerce and Business management

DAV University, Jalandhar City, Punjab, India

Sidharthadav1990@gmail.com

Gurpreet Singh

Department of Commerce and Business Administration

Lyallpur Khalsa College, Jalandhar  City, Punjab, India

gsg2100@yahoo.co.in

Abstract- The series of fraud and corporate scams have been committed both in the public sector and private sector of the nation which are the drivers of industrial and economic growth. There is no doubt that internal auditors plays a very important role in justifying accounting ethics but it is also appropriate to assert that the independence of the internal auditor is not guaranteed because he works as an employee of the organization. Then comes the role of external auditors who may prove helpless due to skills and resource constraints. In other words, the above corporate trend indicated that the manipulators continue to groom their own tactics towards unethical practices in many ways. The forensic accounting  should be introduced because the external auditors may not have the required skills and training to tide over the  emerging  frauds in the corporate world like white collar crimes which may occur in the form of  corporate scams, cash embezzlement, insolvencies, corporate disputes and possibly unethical financial transaction. The present paper laid emphasis on the relevance as well as dominance of forensic accounting over external auditing for the  fraud detection as well as prevention especially in Indian scenario.

 Keywords: Fraud, Internal Auditors, External Auditors, Fraudulent Activities, Forensic Accounting, Investigation Accounting, Indian Scenario

I.INTRODUCTION

Forensic accounting refers to use of the accounting skill to investigate fraud or embezzlement and to analyse financial information for use in legal proceedings (Chakarbarti, 2014).  Corporate fraud, employee embezzlement, and other corporate financial crimes are getting momentum, therefore accounting and auditing personnel must have appropriate training and specific skills to recognize those crimes, both at the state level as well as at the moorings i.e. local level to better ensure the prospects in the area of fraud prevention, deterrence, detection, investigation and remediation (Bhasin, 2007). In making reference outside the scope of this research to enhance better need of the service of forensic accounting in India is the news reports of recent hot scams of Harshad Mehta, popularly known as the Big Bull among traders, triggered a trend in the stock market before his scam, worth Rs. 4000 crore, was exposed in 1992 (Hassan, 2012). Additionally, The most glorying scam of Satyam Computers, where misappropriated books along with inflated figures led to a scam that resulted in a loss of Rs 8000 crore, is still fresh in the history of Indian scams (Basin, 2013). The concept of Forensic accounting covers the use of accounting, auditing, and investigative skills to assist in legal matters (Gray, 2008). It consists of two major elements. Firstly, Litigations services that recognized the role of an accountant as an expert in consultancy, and delve into service that uses a forensic accountant’s skills and may require possible court room testimony (Singh, 2012). According to the definition demonstrated by one of the reputed accounting association named as Association of Institute of Certified Public Accountants (AICPA’s) forensic and litigation services committee, forensic accounting may involve the application of specific skill set with regard to financial accounting, financial auditing, finance analysis, quantitative methods, the law and research. It also involves quantitative skill to collect, analyze, and evaluate financial evidence, as well as the ability to interpret and communicate findings (AICPA, 2002)