Discussion

Auditing and accounting are considered as two very essential and significant parts of running any business. Both accounting and auditing work together and one cannot function without the other. With that being said, a widespread misunderstanding is prevalent that both accounting and auditing are in fact substitutable (Nigrini 2020). Recently, the profession of audit has underwent extensive challenges due to loss of creditability and confidence in financial reporting by users of financial statements.

Several big organizations in developed nations have experienced downfall due to managerial, bookkeeping and financial corruption from dishonest cheat and wide-ranging fraud in current organizations which have resulted in uselessness of financial auditing practices in determining errors and fraud prevention faced by global companies. The current study is based on understanding forensic accounting and traditional auditing along with its impact on the corporate world.

Forensic accounting was founded to meet the need of judges regarding accounting services in financial and accounting matters. It involves the use of accounting, auditing and skills of investigation to help the judges in solving disagreements concerning accounting and financial matters (Tiwari and Debnath 2017). The forensic accountant make use of their characteristics, professional, behavioural traits and scientific skills in accounting, auditing, computer, law and psychology to support forensic accounting investigation by themselves or inside working team. Forensic accounting refers to the science of utilizing auditing, oral, written communication, accounting and criminal law information to analyse, gather proof, reveal and understand the financial and accounting evidence regarding forensic support or assessment and accounting enquiry.  

The traditional auditing on the other hand, is regarded as the procedure of reviewing the work of others to ascertain whether or not they have adhered with given policies, process and practices. The determination is simply based on evidence. Traditional auditing should be viewed as a matter of fact and just a subject of opinion (Alshurafat, Al Shbail and Mansour 2021). The traditional auditing places its focus on identifying errors and preventing them. Preventing errors is viewed as the outcome of effective internal control system. The auditors evaluates the efficiency of internal control system by performing transaction sampling and not through full review of all the transactions. The process can contribute to errors. All the errors are not viewed equal while some are considered important and it is referred as material error.

Forensic accounting is a global phenomenon due to its rising interest. The rise in interest towards forensic accounting is following several financial collapse of numerous global organizations because of financial fraud which have contributed to increased forensic proceedings at courts (Faccia 2020). Currently, forensic accounting are not just restricted to judiciary, banks, insurance companies and government institutions. Forensic accounting helps the forensic accountants in preparing for high competence of scientific qualification. It is helpful in contributing towards increased efficiency and effectiveness of external auditing and increase in confidence in auditing and accounting profession to detect cheat and fraud in financial statements.

Forensic Accounting

The forensic accounting is regarded as an appropriate accounting of legal view point in offering highest degree of assurance and benefit from accounting and auditing and investigation skills when investigation is considered vital for both communicating financial information and correctly at the time of preparing financial reports to assure its trustworthiness. The big four auditing firms such as KPMG, PWC, E & Y and Deloittes offer international auditing services. KPMG provides the auditing firms with services relating to anti-money laundering. Even though money laundering is controlled by particular legislation, the difficulty regarding these legislations in determining fund flows in business environment needs the service of forensic accounting (Rezaee et al. 2016). Forensic accounting plays a vital role in providing intelligence services of institutions where it provides clarification of units, individuals and founders. The forensic accountant role is regarded as the part of audit investigation.

Forensic accounting is useful in providing legal advice in resolving the disputes either judicially or through forensic support services by giving accounting advice towards loss claims. While in PWC, the legal specialists work with clients all through the dispute resolution procedure for addressing the quantitative issues or to provide accounting proof in forensic proceedings.

An importance difference between traditional auditing and forensic auditing is that it helps in determining the disciplines used. The traditional auditors are assigned with the task of ascertaining whether the financial statement of companies provide a fair assessment regarding its current position, while forensic accountants are tasked to do the exact opposite. Forensic accountants are given the task of uncovering the fraud cases (Honigsberg 2020). The main objective of forensic accountants is to determine who has committed fraud and how fraud has taken place and what measures can be adopted to prevent occurrence of fraud in future.

Meanwhile, a correctly planned and performed financial audit can at times uncover the evidence regarding fraud. However, this is not considered as its main function. An audit procedure is not directed towards analysing each single transaction and specifically it will also not look for fraud.

The auditors have the main obligations towards the investing public to make sure that the shareholders are not duped by parting ways with their cash based on the false financial reports (Kranacher and Riley 2019). The work of traditional auditors is considered as a continuous responsibility which means that their responsibility is usually considered as general in type.

Taking into account the forensic accountants, their responsibility is considered highly specific. They do not get effected with concerns of reaching a common agreement on the company’s fiscal status as whole (Oyedokun 2016). The engagement letter clearly defines the objectives of forensic accountants as the work of forensic accountants is directed through counsel and hence it is privileged and confidential in nature.

Traditional Auditing

Traditional auditing will usually have a programme and plan from the start which does not deviate in any circumstances. While in forensic accounting, the investigation process of forensic accountants is not linear and might need numerous pivots or new directions based on the information which has been uncovered (Hegazy, Sangster and Kotb 2017). Forensic investigations under forensic accounting is done on a voluntary basis due to the act of fraud which is alleged to have occurred. While a traditional audit is regarded as an obligatory undertaking regarding which an organization should hire an auditor for conducting the roles.

The study concerning competence and efficiency of forensic accounting has been studied by accounting researchers. As a result of failure of traditional auditor to do legal scrutiny and failure to recognize fraud in an effective manner, the responsibility relating to forensic accounting consists of analysing the types of fraud that has taken place and the main causes of frauds (Kramer, Seda and Bobashev 2017). The insurer uses a fraud detector to improve the analysis financial transactions and assists in detecting errors, fraudulent activities and omissions which can be presented to judge or sent to the audit committee to help in determining the accuracy of financial reports. Integrating the forensic accounting and auditing will actually help in narrowing the expectation gap amid the users of financial reports.

Forensic accounting should be considered as a complementarity amid accounting and auditing of investigation skills which provides high level of assurance and reliability to the profession of accounting that is presented to internal and external users and hence reduce the audit expectation gap for the users (Ozili 2020). While forensic accounting provides the combination of financial experience with the investigative skills and work within the legal framework which provides adequate evidence to control fraud and to confirm the reliability of financial reports.

Forensic accounting has a lot to offer in comparison to the traditional auditing because forensic accounting helps in verifying the claims by the relevant parties. Forensic accounting is useful in ascertaining the overall amount of economic losses that is incurred and helps in collecting the financial evidence which acts as the strong evidence to support the legal claims (Ehioghiren and Atu 2016). Forensic accounting is useful in reducing the audit expectation gap by simply integrating them with traditional audits.

Conclusion:

On a conclusive note, the study has provided that there is a high and positive correlation existent between forensic accounting and audit expectation gap. The accountability of protecting and detecting frauds and other unethical circumstances which results in audit expectation gap can be found with the help of forensic accounting. The auditors are considered accountable to provide neutral opinion regarding the financial statements by simply evaluating the internal control system.

The study reveals that traditional auditing simply lacks to meet the audit expectation gap of users. The lack of user’s expectation can be only met through forensic accounting. It can be stated that there is still lack of interest in forensic accounting even though it is useful in detecting frauds and errors through the accounting and legal skills which judiciary accountant are required to complement to the profession of auditing.

References:

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Honigsberg, C., 2020. Forensic accounting. Annual Review of Law and Social Science, 16, pp.147-164.

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