People are often confused about the difference between a financial statement audit and a forensic audit. These services are mutually exclusive and have distinctively unique purposes. When engaging the services of a forensic accountant, it is important to understand the process and outcome of a forensic audit and how it differs from a financial statement audit.
What is a Financial Statement Audit?
A financial statement audit is conducted by a CPA firm to opine whether a company’s financial statements fairly present its financial position as of a particular point in time. Financial statements are prepared by and are the responsibility of the company’s management. The auditors evaluate whether the financial statements prepared by management are stated in all material respects in accordance with generally accepted accounting principles (“GAAP”). The auditors reach their opinion by examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements. A financial statement audit does not analyze every transaction or look for fraud specifically. While a properly planned financial statement audit may uncover fraud, the focus is not on uncovering potential fraudulent acts. It is possible for a company to have a significant embezzlement or fraud perpetration without it being uncovered during a financial statement audit. Third parties use audited financial statements to evaluate the financial strength of a company for investing or lending purposes.
What is a Forensic Statement Audit?
A forensic audit, on the other hand, is conducted by a forensic accounting expert and is specifically designed to uncover fraud. The objective often includes finding out who committed the fraud, how they did it, how much they took, and how to stop it from happening in the future. A forensic audit is more encompassing than a financial statement audit in terms of assessing the entity’s internal control structure and identification of alleged malfeasance. Forensic audits are conducted in accordance with professional standards applicable to forensic accountants and are not subject to GAAP. A forensic audit report of findings is a fact-based document that may detail internal control weaknesses, alleged acts of malfeasance, and the magnitude of the alleged loss. The forensic audit report can have many purposes, including use by an entity’s management to seek civil restitution from the alleged perpetrator, use by management to strengthen internal controls to prevent fraud from occurring in the future, or use by law enforcement to bring criminal charges.
Each forensic audit is unique and may require the forensic accountant to develop an audit program for the specific objective of the assignment. Hiring the right professional is important as the documents created during the forensic audit may be needed in civil and criminal proceedings, by law enforcement, government agencies, or confidential investigations.
If you would like more information on conducting a forensic audit, contact certified forensic accounting firm Veriti Consulting LLC at (877) 520-1280 or email us to learn more about our forensic CPA services.
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