​As a small business owner, you need to determine your reasons for requesting an audit engagement. A forensic audit and a financial statement audit have separate objectives that do not overlap. Request a forensic audit if you suspect asset-theft fraud. Request a financial statement audit for assurance that your business's financial statements, in all material respects, fairly state the company's financial position as of a certain date. An auditor conducting a financial statement audit is charged with performing audit procedures to discover financial statement fraud but not asset-theft fraud.

Forensic Accounting

Forensic accounting is a specialized branch of accounting that requires training in fraud detection. A forensic auditor examines a company's system of internal controls to identify any weaknesses in the controls designed to safeguard assets and to determine whether anyone in the company has exploited control weaknesses to misappropriate assets for personal gain. The American Institute of Certified Public Accountants classifies forensic accounting into two broad categories: Investigative services involve identifying asset-theft fraud and identifying the perpetrator; litigation services involve gathering evidence and giving testimony leading to the conviction of the perpetrator in a court of law. A forensic auditor will not express an opinion on your company's financial statements.

Asset-Theft Fraud

Asset-theft fraud is using one's position in a company, usually as an employee, to deliberately misuse or steal company resources or assets for personal gain. A financial statement audit will usually not discover asset-theft fraud because the objective of the financial statement audit is to determine whether the financial statements fairly present the company's financial position. For example, if an employee sets up a dummy vendor to siphon off company cash into his own account, the company's books will reflect this cash payment. Even though the transaction is fraudulent, the company's financial statements will accurately reflect this transaction. An auditor conducting a financial statement audit cannot examine every transaction in the company's business records and is not charged with discovering asset-theft fraud. If the financial statements fairly state the company's financial position, the auditor would be justified in issuing an unqualified opinion, even though undetected asset-theft fraud is present.

​FORENSICS AUDIT VS FINANCIAL AUDIT

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MBA Taxation

Daniel Cullinane CPA

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