Do I need a forensic audit?

Lawyers, executive management and regulators often articulate that they are facing a situation requiring a ‘forensic audit’, but can have differing expectations of what a forensic audit entails. 

So when suspicions arise or clarity is needed around financial issues, the question isn’t just ‘do I need a forensic audit’. In this instance, more layered questioning is required to understand the required deliverables and outcome, the concerns to be addressed, and the range of issues involved. 

As partners in forensic accounting and audit, we often collaborate to help clients navigate this decision. In this article, we unpack:

• What a forensic audit might involve, 
• How the scope of a forensic audit can vary and is unique to each matter, and 
• Where an audit or assurance service may be an appropriate alternative to a forensic accounting service.

What is a forensic audit?

There is no official definition of a ‘forensic audit’. APES 215 Forensic Accounting Services identifies four categories of forensic accounting services with an ‘Investigation Service’ being generally the relevant service category. Whilst this professional standard stipulates key engagement requirements around independence, engagement procedures, and professional fees, it is not instructive on the mechanics of a forensic investigation or forensic audit.  

Broadly speaking, a forensic accounting investigation service would involve the investigation or review of financial transactions or events with the aim of uncovering what has occurred, any irregularities, potential misconduct, or other issues arising.   

Unlike a statutory audit, which provides reasonable (but not absolute) assurance that financial statements are free from material misstatement, a forensic accounting service is issue-driven:

1. It begins with a specific concern (or concerns): missing funds, suspected manipulation, conflicts of interest, or breaches of fiduciary duty. The issue at hand may be single concern covering a short time period, not necessarily material, but still important to the organisation. At the other end of the spectrum, there could be multiple concerns spanning many years which are very material to the organisation,
2. The scope of work is tailored to the nature of the allegation or suspicion, and 
3. The procedures are designed to uncover facts, report and interpret the impact and make recommendations where appropriate.

A forensic audit as a forensic accounting investigation service may involve:

• Tracing transactions and reconstructing financial flows through accounting or other records and explain the impact on financial results.
• Clarifying accounting entries or treatments in the books of accounts.  
• Reviewing and reporting on processes and activities undertaken around financial events or transactions, against other non-financial contemporaneous information.
• Identifying and explaining how business units or branch offices have applied and accounted for funds provided for mandated purposes.    

A forensic audit conducted as a forensic accounting service allows for an agile and fluid scope of work. As initial investigations start to uncover new insights, subsequent steps evolve to ensure all issues are captured, investigated and reported on. Whereas an audit or assurance service requires a scope defined at commencement to allow the auditor to conduct work and express the relevant assurance opinion.    

One term, different expectations

Because ‘forensic audit’ is not a defined term, expectations or implied meaning can vary widely. Whilst one use of the term may be to obtain a discreet review of anomalies around certain expenses of a single project, another use of the term may be to undertake a multi-year review of a large corporate group’s accounting for a 10-year period. This ambiguity makes it essential to define the scope, objectives, and deliverables upfront. 

Choosing the right approach

If you're facing a situation where you need clarity around financial transactions, activities or events, or you need transparency for legal or governance reasons, the key is to align the engagement with the issues at hand and the opinions that you need. We work closely across our audit and forensic accounting disciplines to help clients define their needs, understand their options, and select the right path forward. Our tailored approach to understanding your needs and concerns will ensure we identify the right team and scope.    

Further insights: Forensics Forum 

Explore this topic further in our webinar Understanding Forensic Audits in Practice, part of our Forensics Forum series, where our specialists walk through real‑world forensic audit scenarios, key triggers, and what organisations can expect from the process.

Webinar series

Forensics Forum

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