ICAI released standards for forensic accounting and investigation. The institute made it mandatory to follow the rules. The set of rules comes into operation from July 1, 2023. The standards form the crucial step for maintaining quality. Banks, regulatory authorities, financial institutions, and government bodies can use forensic accounting rules for the disciplinary process. After a forensic audit, the gathered information is submitted to a competent authority as proof. Corporate transactions become complex as there are no rules to check the quality.
The Digital Accounting and Assurance Board works under ICAI. The objective of FAIS stands as follows: a minimum number of standards for undertaking forensic audit, quality of service, guidance from FAI services, scope of professional judgement, easy for auditors to conduct forensic auditing in any entity, and the board is researching on the standards about 400 and 300 series. The FAIS sequence is in the following format: 100 series, 200 series, 300, 400 and 500 series. The 100 series is about standards on key concepts. The 200 series is about standards for engagement management. The 300 series is the standard for executing assignments. The 400 series is standard in specialised areas. The 500 series is standard related to quality control.
Important sections in forensic accounting:
The forensic audit moves towards identifying red flags and frauds. This process is the starting point of the FAI activities. Forensic accounting is finding out legal violations, breaches, facts, and evidence suitable for submission to a court of law. Forensic accounting examines the funds, transactions, and balances in the books or third-party books. Investigation is the examination of the facts, evidence, and circumstances to disprove or prove the hypotheses. The real story behind violation, fraud, and unethical conduct is concluded after examination. Standards on Key concepts are FAIS 10, FAIS 130, and FAIS 140. FAIS 110 deals with the nature of engagement. FAIS 12o is fraud risk, 130 is laws and regulations, and 140 is to apply hypotheses. Management standards are 210, 220, 230, and 240. The FAIS 210 deals with engagement objectives. 220 is for engagement acceptance and appointment, 230 is for using the work of an expert, and 240 is for engaging with agencies. Standards on assignments are 310, 320, 330, 340 and 350. The FAIS 310 deals with planning the assignment. Series 320 is conducting interviews, 330 is conducting work procedures, and 350 is review and supervision.
The framework defines forensic audit. The definition is it discovers evidence and facts to support the report findings of the professionals. After examining the evidence and facts, the professional concludes. According to the framework, the investigation is to analyse the documents, evidence, witnesses, and facts related to alleged contractual, ethical and legal violations. Litigation is solving the dispute as directed by the court and regulatory body. The framework defines fraud as an intentional act through unfair means to deprive money or property.
Basic principles of the framework:
- The framework says that the professional should have a neutral mind and independent conduct and appearance.
- The professional should have integrity and objectivity. The forensic audit should be honest, ethical, truthful and fair in its dealings.
- The Auditor should communicate continuously to avoid misunderstanding. Professional care towards work, compliance and communication is important.
- The professionals should safeguard the privacy rights of individuals. The evidence used for the investigation should be maintained with confidentiality.
- The professionals handling forensic accounting and investigation should have sound knowledge, experience and expertise in the domain.
- The framework provides a complete picture through the contextualization of the situation.
- The primary objective of a forensic audit is to find out the truth.
- The forensic auditor should respect the rights and obligations of the suspects.
- The information obtained from forensic investigation should not be pure facts or personal opinion. It should separate the facts and opinions from the information.
- The professional should implement quality control and improve continuous performance.
Expert views about forensic accounting:
The partner and leader of Risk advisory services of Nangia and Co, LLP is Srinivasan Rao. He states that the 2023 standards of FAIS are the first of their kind and extremely important. These standards are a reference rule book for forensic investigations. He further says that in the era of growing advanced-level technologies like machine learning, digital payments and artificial intelligence, forensic audit should be futuristic.
ICAI said that the professionals can use appropriate procedures to achieve the objectives. FAIS is a principle-based and subject-based one. The judgemental part and application are left to the auditors.
The partner of IP Pasricha and Co Maneet Pal Singh also commented about the forensic accounting standards. He said that the finance industry is moving towards a transformational shift. The framework enhances financial integration and provides the skills to detect fraud activities. These standards enhance consistency, quality and professionalism. The standards will improve the credibility of the financial reports. The standards also contribute to the fraud detection and prevention.
Final Words:
Technological advancement, digital payments, and cryptocurrencies are increasing the risk of money laundering. Forensic audit standards help the auditors understand the process of investigating fraud activity. The standards increase the credibility and security of financial transactions in India.
