Beruflich Dokumente
Kultur Dokumente
Forensic Accounting
And
Auditing
Submitted By
Durvesh S. Naik
Roll No: - 6025
MCOM PART-II
(Advanced Accountancy)
2014-15
MULUND COLLEGE OF COMMERCE
SAROJINI NAIDU ROAD,
MULUND (W.)
MUMBAI-80
SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR 2014-15
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DECLARATION
I Durvesh Naik student of Mulund College of Commerce, S. N.
Road, Mulund (W.) Mumbai 80 of Mcom Part II (Advanced
Accounting) Seat no: - 6025, hereby declare that I have completed
the project on the title Forensic Accounting and Auditing
during the academic year 2014-15. The information submitted is
true and best of my knowledge and belief.
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Signature
Certificate
This is to certify that
Mr. __________________________________________________________
Of Mcom. Part II (Advanced Accountancy) Semester _______ has undertaken
completed the project work titled _________________________
______________________________ during the academic year __________
under the guidance of Prof. ______________________________________.
Submitted on _________________ to this college on the fulfillment of the
curriculum of Mcom (Advanced Accountancy) University of Mumbai.
This is a bonafide project work & the information presented is true/ and
original to the best of our knowledge and belief.
PROJECT
GUIDE
COURSE
EXTERNAL
CO-ORDINATOR
EXAMINER
PRINCIPAL
ACKNOWLEDGEMENT
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Contents
INTRODUCTION.......................................................................................................7
WHAT IS FORENSIC ACCOUNTING?..................................................................9
FORENSIC ACCOUNTING IMPLEMENTATION IN INDIA............................10
OBJECTIVES OF STUDY:......................................................................................11
RESEARCH METHODOLOGY:............................................................................11
HISTORICAL PERSPECTIVE OF FORENSIC ACCOUNTING IN INDIA.....12
NATURE OF FORENSIC ACCOUNTING............................................................13
TYPES OF FRAUDS:...............................................................................................14
THE SCAMS IN INDIA:-.........................................................................................15
USES OF FORENSIC ACCOUNTING:.................................................................17
FORENSIC ACCOUNTANTS - THE BLOODHOUNDS OF BOOK-KEEPING
.................................................................................................................................... 18
WHAT DOES A FORENSIC ACCOUNTANT DO?..............................................20
APPLICATION OF PRINCIPLES OF FORENSIC ACCOUNTING TO AN
ORGANISATION.....................................................................................................21
THE TECHNIQUES OF FORENSIC ACCOUNTING:........................................22
COMMON ACCOUNTING FRAUD AREAS........................................................24
WHY ENGAGE A FORENSIC ACCOUNTANT?.................................................25
ROLE OF FORENSIC ACCOUNTANT.................................................................26
ROLE OF FORENSIC ACCOUNTANTS UNDER INDIAN STATUTES...........28
WHAT CHARACTERISTICS/SKILLS SHOULD FORENSIC ACCOUNTANT
POSSES?.................................................................................................................... 30
ADVANTAGES AND DISADVANTAGES OF FORENSIC ACCOUNTING......32
CURRENT AFFAIRS:-.............................................................................................34
CONCLUSION.........................................................................................................35
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INTRODUCTION
documents. The amount was nearly four times higher than that in 2010 of Rs
1,202 crore.
But other spaces too are exposed to fraud, which is why the scope of forensic
auditing is getting wider. Whats more, chartered accountants, MBAs and
lawyers are no longer solely relied upon. While they do form the core part of
forensic accounting, there is now a need for financial research analysts,
engineers, journalists, artists and even former law enforcement officials. As
experts point out, fraud related to a toll road or competitive bidding would call
for the services of a professional with insights into the infrastructure industry
while a white-collar crime in financial services and issues related to stressed
assets or anti-money laundering would require an understanding of the working
of banks and financial intermediaries. The nature of crimes is complicated and
issues such as conflicts of interests, code-of-conduct violations and regulatory
non-compliance require a strong working knowledge of the sector.
More companies are waking up to the fact that corporate offences cant be
wished away. Indeed, the Kroll report showed India was well above the average
when it came to most crimes. Theft of physical assets 33% of companies
were affected versus 28% for the survey as a whole, and corruption 24%
compared with 14%. India also beat the average on internal financial fraud
22% against 16% and had an above- average incidence of information theft
24% compared with 22%. Indian companies were aware they operated in a
high-corruption environment... Companies need to avoid accepting that fraud is
just a normal part of business, Kroll observed.
But there are other reasons why demand may be rising. Provisions of the new
Companies Act mean that every company now has to have proactive fraud risk
management policies. The Act requires independent directors to increase
safeguards against fraud and reminds them of their whistleblowing
responsibilities. Objections must be documented, and now that the Act defines
fraud and safeguards explicitly, ignorance of the parameters of either will no
longer be a defense.
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Forensic accounting is very important tool to detect, investigate and prevent the
frauds .Whether it is stock market fraud or bank fraud or cyber fraud; forensic
accounting has become an indispensable tool for investigation. With India being
ranked as the 88th most corrupt nation, the needs for forensic accountants
become all the more profound.
Forensic Investigation:The utilization of specialized investigative skills in carrying out an inquiry
conducted in such a manner that the outcome will have application to a court of
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In India, Forensic Accounting has not got its due recognition even after
alarming increase in the complex financial crimes and lack of adequately
trained professionals to investigate and report on the complex financial crimes.
The task of Forensic Accountants is handled by Chartered Accountants who
apart from handling traditional practice of auditing as required under the
Companies Act, 1956 or Income Tax Act are called upon by the law
enforcement agencies or the companies or private individuals to assist in
investigating the financial crime or scam.
The CA or CMAs in India are best suited for this profession due to their
financial acumen acquired during their rigorous training which can be further
honed by introducing post qualification degree or diploma in Investigating and
Forensic Accounting similar to one introduced by CICA.
financial crimes and give expert testimony in the Court of Law. However, no
efforts has so far been made by the ICAI and ICMAI, the two leading statutory
accounting professional bodies to move in this direction and set up a institute
which can offer the post qualification diploma in Investigative and Forensic
Accounting to its members.
However, growing financial fraud cases, recent stock marker scams, failure of
non financial banking companies, phenomena of vanishing companies and
plantation companies and failure of the regulatory mechanism to curb it has
forced the Government of India to form Serious Fraud Investigation Office
(SFIO) under Ministry of Corporate Affairs which can be regarded the first step
of Government of India to recognize the importance and advance the profession
of forensic accountants. The SFIO is a multidisciplinary organization having
experts from financial sector, capital market, accountancy, forensic audit,
taxation, law, information technology, company law, customs and investigation.
These experts have been taken from various organizations like banks, Securities
& Exchange Board of India, Comptroller and Auditor General and concerned
organizations and departments of the Government. However, the main
important law enforcement agency involved directly in combating frauds is the
Police, CBI, DRI etc.
OBJECTIVES OF STUDY:
1. To know the various uses of forensic accounting in India.
2. To know the role of Forensic Accounting (techniques) in fraud
examination.
RESEARCH METHODOLOGY:
The paper is based on secondary data and some discussion with eminent
persons in the corporate sector. Forensic Accounting is investigation
accounting which involves analyzing, testing, inquiring and examining the
civil and criminal matters and finally giving an unbiased and true report.
Just as forensic investigations and lab reports are needed in the court to
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solve the murder and dacoit mysteries. Similarly forensic accounting plays
a key role in tracing the financial frauds and white-collar crimes.
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TYPES OF FRAUDS:
Following are the types of frauds:
1) Bank frauds
2) Corporate frauds
3) Insurance frauds
4) Cyber frauds
5) Securities frauds
1) Bank Frauds:
The number of bank frauds in India is substantial. It is in increasing with the
passage of time in all the major operational areas in banking. There is different
area in Bank Deposits, loan, inter branch, accounting, transaction etc. Bank
fraud is a big business in today's world.
2) Corporate Frauds:
In India, is rising 45% from leading Indian business declared that fraud e.g.
Satyam Computers stunned the national financial world in 2009 Satyam
Founder B. Ramalingan Raju declared he had inflated profit and jacked up the
companys Balance Sheet by more than one billion dollars.
3) Insurance Frauds:
There is different type of frauds in insurance sectors. E.g. health insurance,
claims fraud, false claims, insurance speculations, application frauds etc.
4) Cyber Frauds:
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Who says Indian cyber crimes are still in the infancy? This is a man who
penetrated the Ecommerce for his personal benefits to a great use credit card,
ATM card, cyber taking
Work at home etc.
5) Securities Frauds:
Although not corruption scams these have affected may people there is no way
that the investor community forget the under truncate Rs. 4000 crore Harshad
Metha scam and over Rs. 1000 Crore Ketan Parekh scams which ended the
shareholder wealth in form of big market.
Year
reported
Scope
Key Players
Summary
Stamp Paper
scam
2005
Rs.600
billion
Counterfeiting of stamp
papers. Selling fake to
bulk purchasers like
banks, insurance
companies & stock
broking firms. Sentenced
to 30 years of rigorous
imprisonment.
Satyam
Scam
2009
Rs.14000
crore
2G Spectrum
2010
Rs. 1760
billion
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which is illegal.
Commonwealth
games
2010
Adarsh
Housing
Society scam
2010
Not
Top Army officials, IAS Originally meant to be a
known yet officers, politicians &
six-storey structure to
legislators
house Kargil war heroes
and widows, got
converted into a 31-storey
and allotted to
bureaucrats, top defence
officers, a former
environment minister and
legislators. The market
rate was 6-8.5 crores &
was allotted at a throw
away price of 60-85
lakhs. Violations in
environment rules.
Coal gate
2012
VVIP
Chopper
deal scam
2013
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Rs. 362
crores
Augusta Westland
Company, Former IAF
chief SP Tyagi & his
Allegations of
corruptions and
mismanagement by the
organizing committee,
delay in the construction
of main venue leading to
misuse of funds,
infrastructural
compromise, hefty
payments made in the
name of non-existing
parties
cousins, politicians,
contract worth Rs. 36
Govt officials & several billion. Two Indian firms
middlemen
played key role in the
controversy.
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In addition to the specialized knowledge about the techniques of finding out the
frauds one needs patience and analytical mindset. One has to look beyond the
numbers and grasp the substance of the situation. It is basically the work of the
intelligent accountants. He needs to question seemingly benign document and
look for inconsistencies. He searches for evidence of criminal conduct or assists
in the determination of, or rebuttal of, claimed damages.
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Litigation Support
Assistance in obtaining documentation necessary to support or refute a
claim.
Review of the relevant documentation to form an initial assessment of the
case and identify areas of loss.
Assistance with Examination for Discovery including the formulation of
questions to be asked regarding the financial evidence.
Attendance at the Examination for Discovery to review the testimony; assist
with understanding the financial issues and to formulate additional questions
to be asked.
Review of the opposing expert's damages report and reporting on both the
strengths and weaknesses of the positions taken.
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Total overhead costs might be divided by total direct labor hours. Ratio
analysis may help a forensic accountant to estimate expenses.
Revenue Recognition
Reserves
Inventory
(a) Over-valuation
(b) Non-existent inventory
Expenses
Others
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This arises from the additional dimension and depth which experienced
individuals in fraud investigation bring with them to focus on the issues at hand.
Such individuals are specialists in rooting out fraud and would recognise
transactions normally passed over by the organisation's accountants or auditors.
(v) Expert Witness Cases: Forensic accountants often attend court to testify in
civil and criminal court hearings, as expert witnesses. In such cases, they attend
to present investigative evidence to the court so as to assist the presiding judge
in deciding the outcome of the case.
(vi) Meditation and Arbitration: Some forensic accountants because of their
specialist training they would have received in legal mediation and arbitration,
have extended their forensic accounting practices to include providing
Alternative Dispute Resolution
(ADR) services to clients. This service involves the forensic accountant
resolving both mediation and arbitration disputes which otherwise would have
been expensive and time consuming for individuals or businesses involved in
commercial disputes with a third party.
(viii) Litigation Consultancy: Working with lawyers and their clients engaged
in litigation and assisting with evidence, strategy and case preparation.
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because of the nature of the fraud and the difficulties encountered by the
Auditors in detecting material misstatements in the financial statements
resulting from fraud. Accordingly, it may be concluded that it is enough if
the Auditor expresses his opinion on the frauds noticed and reported by the
management and not expected to be a detective to approach his work with
suspicion
Another major issue under this clause is that it also requires reporting of
frauds committed by the Company. The Auditor is left with no clues and is
expected to travel beyond the books to search for market information about
frauds committed by the Company, which is highly illogical.
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organization.
bud, said Bansal. Of the initial amount of Rs. 180 crore, as much as Rs. 110
crore was immediately recovered and handed over to the original remitter, he
added.
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CONCLUSION
A large global accounting firm believes the market is sufficiently large to
support independent unit devoted strictly to 'forensic' accounting. All of the
larger accounting firms, as well as, many medium-sized and boutique firms
have recently created forensic accounting departments.
Because forensic accounting is relatively a new area of study, a series of
working definitions and sharing of corporate experiences should be undertaken
and encouraged to ensure a common understanding. Indeed, there is great future
in forensic accounting as a separate "niche" consulting.
While the forensic accounting and auditing practice had commenced in the US
as early as 1995, the seed of this specialization has yet to take off in India.
Forensic accountants are only dealing with financial implications of the cases
entrusted to them and not engaging in auditing exercise. On account of global
competition, the accounting profession must convince the marketplace that it
has the "best-equipped" professionals to perform such services.
While majority of CAs have excellent analytical skills, they need to
acknowledge that 'forensic' services require 'specialised' training as well as reallife 'practical' corporate experience.
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Reference
1. Preeti Singh, 2012, Forensic Accounting Concept in India, International
Journal of Trade and Commerce-IIARTC, Vol. I, NO. I, pp. 100-105.
2. cawebworld.com/articles/forensic-accounting-upcoming-career-professionals
3. studycafe.in/2013/11/forensic-audit-reporting-prespective
4. financialexpress.com/news/forensic-auditors-to-the-fore-on-increasingwhitecollar-crimes
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