Why Does a Company Need Due Diligence Investigation and Forensic Audit?
Audits can be of different kinds. They can serve diverse purposes. A forensic audit is a type of audit that often gets misused. A forensic audit is an objective audit of a company’s financial statements. These audits uncover fraud. They are necessary to receive information for litigation. One common example is a lawsuit between two businesses regarding patent infringement. Forensic audits are also essential to provide information to an organization before it completes a deal. If one company acquires another company, these audits become useful. It will reveal if it makes sense to sell or purchase a business.
A forensic audit contains details that you will not find in financial statements. Forensic auditors gain access to a company’s documents, computer systems, and employees. This is one of the reasons why businesses should choose forensic auditors carefully.
Categories of forensic audits
Not all audits are the same. Understanding the variations will make it easy for you to hire an auditor. The following are the categories of forensic audits:
Fraud audits- What is the job of fraud auditors? As the name suggests, they look for signs of all kinds of financial fraud. These include insider trading, bribery, and financial misrepresentations the management does. It is their responsibility to examine if existing financial controls suffice in preventing such frauds in the future.
Due diligence audits- Investors appoint due diligence auditors on various occasions. They can investigate facts and create reports. These reports are sufficient to figure out whether to make investments in a business.
Litigation support audits- Parties require the assistance of litigation support auditors. It is vital when they are involved in lawsuits. The auditors conduct in-depth investigations and prepare reports that serve as evidence.
SEBI investigations- The Securities and Exchange Board of India investigates companies. When a company violates securities laws, SEBI investigations take place. These are formal investigations. Auditors look for evidence that proves the accused company has broken the law.
How can a forensic audit benefit a company?
A forensic audit is of utmost significance in risky situations. When a company is stuck in a lawsuit or fraudulent activities have happened – it becomes crucial. A forensic audit can disclose details that might determine the lawsuit’s outcome. When two organizations are part of a patent dispute, what does the judge do? He studies the forensic audit. It reflects which company has invested more in Research and Development. It becomes easy for the judge to choose which party should get compensation.
In such cases, companies approach private auditing firms for reviewing the financial statements of the rival company. Along with forensic auditing, a data protection strategy is also necessary.
The Takeaway
In conclusion, due diligence investigation and forensic audit help an organization detect fraud. Only experienced and qualified people can do it accurately. Well-known detective agencies have a designated forensic team. The team comprises private detectives who are adept at conducting forensic audits. So, as a conscious business owner, hire a detective agency after doing proper research.
