Main Differences between Forensic and Financial Audit
Internal audit firms in UAE who are able to the increasing scrutiny of corporate ethics and fraud. Forensic accounting is a specialty that combines auditing, accounting and investigative skills. “Forensic” is a term that can be used in court. The term “forensic accounting” was invented to distinguish between traditional financial auditors and accountants who are more skilled in investigating fraud.
Forensic accounting, a special practice in accounting, focuses on a specific approach and methodology to identify financial fraud. Forensic auditors/fraud auditors are certified internal audit in Dubai specialists who are skilled at detecting fraud in financial transactions and accounting. Forensic accountants/auditors need to have the same skills as financial auditors. They also need to know how to collect evidence and document fraud losses for criminal or civil purposes. They should also be able to interview third-party witnesses and testify as expert witnesses. Although forensic accounting is becoming more common in the workplace, many people are still not sure what the difference between a financial audit and an examination/forensic audit is. Both services are distinct and mutually exclusive. It is important for internal audit companies in UAE and other users to fully understand the purpose and process of a Forensic Audit and how it differs from a Financial Statement Audit when engaging the services.
Financial Accounting – Financial Statement Audit
Internal audit service UAE teams conduct a financial statement audit to determine if a company’s financial statements accurately reflect its financial situation at a given time. Auditors assess whether financial statements prepared and approved by management conform to Generally Accepted Accounting Principles (“GAAP”) in all material respects. Internal audit services in Dubai arrive at their opinions by reviewing, on a testing basis, all evidence supporting the amounts or disclosures in financial statements. An audit of financial statements does not examine every transaction and do not look for fraud. A properly planned financial audit can uncover fraud but the main focus is not to uncover potential fraudulent acts. A company can commit significant embezzlement and fraud without having it revealed during a financial audit.
Many people have asked why financial statements audits don’t detect more fraud. If fraud were to be committed, the general public believes that a financial audit would catch it. However, the truth is that financial audits are meant to detect material misstatements. Financial auditors will focus on misstatements that are significant in isolation or in their aggregate. Fraud auditors, forensic accountants, and others are not limited by materiality. The financial statement audit reports can be used by many different stakeholders and corporate audiences for many purposes. This includes senior management, the audit committee and the board of directors. To assess the financial strength and ability of a company to lend or invest, third parties may use audited financial reports.
Forensic Accounting – Financial/Fraud Investigation
Forensic accounting is performed by a forensic accountant expert. It is designed to uncover fraud. The goal is often to find out who did the fraud, how it was done, what they spent, and how to prevent it from happening again. In terms of assessing a Dubai, UAE entity’s internal control system and identifying alleged fraud or irregularities, a forensic audit is more comprehensive than a financial audit. Although forensic engagements are required to follow GAAP’s basic rules, they may differ from what is prescribed depending on the situation. There are no standard guidelines for forensic accounting. In order to analyze specific circumstances or a sequence of events within a company, forensic accountants will usually start with financial data.
As needed, the forensic accountant will interview many employees of the company, including the clerical staff and the top management. The examiner will use these interviews and other observations to determine red flags. A forensic internal audit report with findings is a fact-based document. It may include details about internal controls weaknesses and alleged malfeasance. The forensic audit report of findings may include recommendations to improve any weaknesses or gaps in the internal controls. A forensic audit report may be used by an entity’s management for restitution from the accused perpetrator, to strengthen internal controls to prevent future fraud, or by law enforcement to bring about criminal charges.
Every forensic project is different and the forensic accountant may need to create an audit program specific for each engagement. The forensic accountant will usually work in conjunction with a legal team and assume that he/she will be called upon to testify as an expert in court proceedings. It is important to have the right expertise and qualifications of the engagement team as documents created during the forensic auditor may be required in civil or criminal proceedings by law enforcement agencies or confidential investigations.
Concluding Thoughts
It is important that companies in Dubai and UAE understand their objectives and set them forth clearly as a business owner or accountant practitioner when it comes to audit engagements. The objectives of a forensic and financial audit are very different. They do not overlap.
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