FORENSIC AUDIT DECODED
This book focuses on a ‘detailed-commentary’ and ‘step-by-step approach’ for the Forensic Audit of Financial Transactions. It also deals with each and every aspect of Forensic Audit of various items of statement of Profit & Loss and Balance Sheet.
The Present Publication is the Latest Edition & is updated with all amendments and legal position up to July 2020, authored by G.C. Pipara.
Understanding the Forensic Audit is not complete, without actual Case Analysis and this book includes analysis of actual company cases relating to Forensic Audit, where either fraud or misrepresentation of information is found. With the help of Case Analysis, how to achieve the maximum objective of Forensic Audit, has been explained in a lucid language with step-by-step approach.
Each part of this book deals with the different segments of the forensic audit and each part has been devised carefully, keeping in mind – ‘Maximum Result’ and with an objective that the real purpose of Forensic Audit is served.
This book deals with –
- Misstatement of information in financial statement,
- Incorrect details in financial statement,
- Diversion of funds by an entity,
- Siphoning of Funds by an entity,
- Fraud in some of the transactions undertaken by the entity,
- Fraud in books of accounts and other records,
- Fraud in the balance sheet – one which is even audited,
- Fraud by the auditor in helping the organization to accomplish its intention etc.
The structure of the Book is as follows:
- Deals with the introduction of forensic audit and looks into the past, present and future of forensic audit. This part is presented to establish the foundation of the book.
- Deals with important transactions pertaining to purchases of goods, sales and other major expenditures – which forms part of the statement of profit & loss account. Provisions and contingent liabilities are often used by an entity to cook the books of account and therefore, a separate chapter is presented on this issue.
- The various items contained in the balance sheet, are a major part of the activities of any entity and therefore, is a major part of any forensic audit also. Therefore, in this part of the book, the following important activities of an entity’s are covered:
- Fixed (Hard) Assets – hard to spot
- Intangible Assets and Goodwill – neither visible nor real
- Capital Work In Progress (CWIP), Stock In Progress (SIP) and Stock – not seeing the light of day
- Piling Stock and Mounting Debtors – an evergreen technique for every-greening
- Investments – without objectives like a traveller without a destination
- Loans and Advances given – gone with the wind
- Equity and Shareholders – invisible ownership
- Apart from specific activities of an entity, as covered in part two and three, there are some transactions that are special. These are considered as “Key Metrics” for the purpose of forensic audit and thus, covered in this part of the book, which includes:-
- Absence of confirmation of balances
- Off-balance sheet transactions
- Round-tripping etc.
It is also common in forensic audit that full records are not made available to the auditors and thus, a separate chapter on “Dog ate my Accounts” is presented.
- For explaining the concept of forensic audit properly, a new Structure has been invented by the author – termed as “T-3 Structure” wherein:
- T-1 : Test
- T-2 : Trace and
- T-3 : Track
With the help of a concept called “Look Forward – Look Backward” on T-3 Structure, how the successful forensic audit can be carried out is explained in a separate chapter, under the head “Look Forward – Look Backward”.
- Lastly, it is found that in various cases of fraud and misrepresentation of details in the financial statement, the Statutory Auditor were found to be the helping hand. As in forensic audit – responsibility has to be fixed and thereafter, a separate part itself for the role played by the statutory auditor – “Where were the Auditor’s – strange but true”.
This book aims to explain the readers how to read, understand, analyse and interlink the voluminous information available in the financial statement with the help of charts, case analysis, etc. In other words, this book provides in-depth analysis, stepwise approach with the use of case analysis, to understand & decode the financial statements. This book extensively deals with the following issues & suggests on how they can be mitigated through proper analysis of financial statements:
- Laxity in credit risk appraisal and loan monitoring in banks
- Lack of appraisal skills for projects that need specialised skills, resulting in acceptance of inflated cost or aggressive projections etc.
- How to find out frauds, wilful default, diversion of funds
- How to find out early warning signs based on proper analysis of financial statements
The entire concept of decoding of financial statement has been divided into six keys:
- Key #1 deals with Statement of Profit & Loss
- Key #2 deals with Balance Sheet
- Key #3 deals with Concept of Audit and Auditor’s Report
- Key #4 relates to Companies Auditor’s Report Order
- Key #5 is used for decoding Connecting Statements, and
- Key #6 is the Master Key
The Present Publication is the 3rd Edition, authored by G.C. Pipara, with the following noteworthy features:
- [Reading between the lines of Financial Statements] and correlating relevant information with proper analysis, using the Authors experience
- [How to Hone your Skills] to dissect financial statements with surgical precision
- [Unlocking the Mysteries & Tricks] by explaining how to analyse the various details & detect what has been disclosed and not
- [Focused Analysis] to find out strengths, early warning signs, frauds, creative accounting, genuineness of various items, etc.
- How to read the balance sheet beyond what is visible on the surface
- How to analyse the information
- How to correlate the various details available
- [Professional Oriented Book] This book has been developed, keeping in mind the following factors:
- Interaction of the author during his trainings to various banks and organisations on credit and analysis of financial statements
- Shaped by the authors experience of 38+ years being a chartered accountant, research analyst and fraud investigator
- Reaction and responses of attendees during the trainings, have also been incorporated at different places in the book
- [New Chapter on CARO 2020] has been considered in detail under Key #4 | The Companies Auditor’s Report Order.
- [Updated & Amended] All changes made in the Companies Act and latest position as at the end of March 2021 has been considered in this book
The detailed contents of the book are as follows:
- Statement of Profit & Loss
- Revenue from Operations
- Other Income
- Cost of Materials Consumed and Purchases of Traded Goods
- Manufacturing and Operating Cost
- Finance Cost
- Tax Expense
- Other Expenses
- Exceptional Items, Extraordinary Items and Prior Period Items
- Property, Plant and Equipment – Tangible
- Fixed Assets – Intangible
- Loans & Advances
- Other Assets
- Inventories and Trade Receivables
- Cash, Cash Equivalent and Bank Balances
- Advances Recoverable in Cash or Kind or for Value to be Received
- Shareholders’ Funds or Net Worth or Capital
- Provisions & Contingent Liabilities
- Trade Payables and Other Liabilities
- Concept of Audit and Auditor’s Report
- Understand the Audit
- Report on Internal Financial Controls
- Analysis of Opinions
- Analysis of Emphasis of Matters/Note
- Companies Auditor’s Report Order
- Control over Resources
- Related Party Transactions
- Legal Compliance
- Statutory Dues
- Financial Health of the Company
- End Use of Funds
- Whistle Blower
- Resignation of Statutory Auditor
- Connecting Statement
- Significant Accounting Policies
- Notes on Accounts
- Cash Flow Statements
- Master Key
- How to Link 5 Key to Decode Financial Statement