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Difference between Fraud audit and Forensic Audit

Kishore Nuthalapati (Accountant for multiple small entities) (147 Points)

11 March 2023

Hi Sir/ Madam

Could some one please explain difference between Fraud Audit and Forensic Audit with an example

Thanks in advance

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2 Replies

Jignesh Mehta (2 Points)
Replied 12 March 2023

Both are same. objective is to establish the occurance or otherwise of fraud. both audits presupposes the occurance of fraud and is directed to obtain evidence for same.

CA Rakesh Ishi (Working at Private Company) (7775 Points)
Replied 15 March 2023

Fraud Audit:

Fraud audit is an audit that is conducted specifically to detect and investigate frauds that may have occurred in an organization. The focus of a fraud audit is to identify instances of fraud and to quantify the financial loss caused due to such frauds. A fraud audit is usually conducted by an internal or external auditor who has specialized knowledge and skills in fraud detection and investigation.

Example: Suppose a company has been experiencing a sudden increase in the number of customer complaints about fake products. In such a case, the company may conduct a fraud audit to investigate whether any of its employees have been involved in the production and sale of counterfeit products.

Forensic Audit:

Forensic audit, on the other hand, is a broader term that encompasses a range of investigative procedures that are used to detect and investigate financial irregularities, including frauds. The scope of a forensic audit is wider than that of a fraud audit, and it includes the examination of financial records, data analysis, and interviews with relevant parties. Forensic auditors use a range of techniques to uncover frauds and financial irregularities and to collect evidence that may be used in legal proceedings.

Example: Suppose a company is involved in a legal dispute with one of its suppliers over a contract. The company may conduct a forensic audit to investigate whether the supplier has breached the terms of the contract and to gather evidence that may be used in the legal proceedings.

In summary, while both fraud audit and forensic audit are conducted to detect and investigate frauds and financial irregularities, the key difference between them lies in their scope and approach. Fraud audit focuses specifically on identifying instances of fraud, while forensic audit is a broader investigation that includes the examination of financial records, data analysis, and interviews with relevant parties, and may be conducted to investigate a wider range of financial irregularities beyond just frauds