Project Report

On
`

FORENSIC ACCOUNTING AND

AUDITING.

BY
Mirza Marziya Farid Hussain.
 FORENSIC ACCOUNTING AND
AUDITING

Project Report

Submitted By:
Marziya Mirza
2021-2022

Under the Guidance Of:

Mr

Submitted in partial fulfillment of the

Requirement for qualifying BAF
Semester -VI Examination

UNIVERSITY OF MUMBAI

JES COLLEGE OF COMMERCE AND SCIENCE &

INFORMATION TECHNOLOGY
Arvind Gandbhir high School Campus,cave road,
Nr.Rly station.
Jogeshwari East. Mumbai-400060
 JOGESHWARI EDUCATION SOCIETY
JES COLLEGE OF COMMERCE AND
SCIENCE
& INFORMATION TECHNOLOGY
Caves Road,Arvind Gandbhir Camus;opp.Rly Stn;Jogeshwari East;mumbai-400060.

PROJECT CERTIFICATE

This is to certify that the project certified

By Mr/Mrs Seat no.

In partial fulfillment of BAF degree Sem VI examination had not been
submitted for any other examination and does not form any other
course undergoes by the candidate.

Internal Guide External Examiner

Co-ordinator College Seal

 A PROJECT REPORT
ON
FORENSIC ACCOUNTING AND AUDITING

BACHELOR’S OF ACCOUNTS & FINANCE

SUBMITTED BY
MIRZA MARZIYA FARID HUSSAIN

PROJECT GUIDE
MR

JES COLLEGE OF COMMERCE AND SCIENCE &

INFORMATION TECHNOLOGY
ARVIND GANDBHIR HIGH SCHOOL CAMPUS,
CAVES ROAD, JOGESHWARI (EAST),
MUMBAI-400060
 ACKNOWLEDGEMENT

I acknowledge with gratitude my indebtness to

professors for giving me the opportunity to work on this
project and gave valuable guidance for preparing this
project.

I would like to thanks those people who directly or

indirectly help me to enhance my practical knowledge in
the field of commerce and express my sincere gratitude
to all those who share valuable thoughts with me.

This is being my first effort, the possibilities of errors and

omissions in its contents and presentation cannot be
completely ruled out, I shall however, grateful to my teachers,
colleagues and other readers from their suggestion for its
improvement.
Contents
INTRODUCTION…………………………………………………………..
WHAT IS FORENSIC ACCOUNTING?……………………………..
FORENSIC ACCOUNTING IMPLEMENTATION IN INDIA..
OBJECTIVES OF STUDY………………………………………………
RESEARCH OF METHODOLOGY………………………………..
HISTORICAL PERSPECTIVE OF FORENSIC ACCOUNTING IN
INDIA………………………………………………………………………
NATURE OF FORENSIC ACCOUNTING…………………………..
TYPES OF FRAUDS…………………………………………………….…
THE SCAMS IN INDIA…………………………………………………..
USES OF FORENSIC ACCOUNTING………………………………..
FORENSIC ACCOUNTANTS-THE BLOODHOUNDS OF BOOK-
KEEPING…………………………………………………………….
WHAT DOES A FORENSIC ACCOUNTANT DO?……………….
APPLICATION OF PRINCIPLES OF FORENSIC ACCOUNTING TO
AN ORGANISATION…………………………..
THE TECHNIQUES OF FORENSIC ACCOUNTING:…………….
COMMON ACCOUNTING FRAUDS AREAS……………………..
WHY ENGAGE A FORENSIC ACCOUNTANT?………………….
ROLES OF FORENSIC ACCOUNTANT……………………………..
ROLES OF FORENSIC ACCOUNTANTS UNDER INDIAN INDIAN
STATUES…………………………………………………………..
WHAT CHARACTERISTICS/SKILLS SHOULD FORENSIC
ACCOUNTANT POSSES?………………………………………………..
ADVANTAGES AND DISADVANTAGES OF FORENSIC
ACCOUNTING………………………………………………………………
CURRENT AFFAIRS:-……………………………………………………
CONCLUSION……………………………………………………………….
 INTRODUCTION

Corporate fraud is on the rise in India, Compelling more

management to conduct forensics audit. Experts on white-
collar crime say forensic accounting is not just gaining
prominence, the methods are changing fast. Unofficial
estimates value the practice at Rs- 400-500 crore annually but
it is believed that this could be double in next three or four
years.

Forensic accounting utilizes accounting, auditing, and

investigative skills to conduct an examination into the finances
of an individual or business. Forensic accounting is frequently
used in fraud and embezzlement cases to explain the nature of
a financial crime in court.

Forensic accountancy or financial forensics is the specialty

practice area of accounting that investigates whether firms
engage in financial reporting misconduct. Forensic accountants
apply a range of skills and methods to determine whether there
has been financial reporting misconduct

Forensic accounting and fraud investigation methodologies are

different than internal auditing. Thus forensic accounting
services and practice should be handled by forensic accounting
experts, not by internal auditing experts. Forensic accountants
may appear on the crime scene a little later than fraud auditors,
but their major contribution is in translating complex financial
transactions and numerical data into terms that ordinary
laypersons can understand. That is necessary because if the
fraud comes to trial, the jury will be made up of ordinary
laypersons. The fieldwork may carry out legal risks if internal
auditing checklists are employed instead asking to a forensic
accountant and may result serious consultant malpractice risks.
Insider fraud was particularly rise in India, with 89% of
respondents indicating the perpetrator was an insider of some
sort -- a junior, middle management or senior employee, or an
agent.

In 2016, the Forensic Auditors Certification Board (FACB) of

England and Wales was established by the major forensic
auditing and accounting bodies from across the world with its
registered address in London. FACB is a professional bodies
membership body comprising the International Institute of
Certified Forensic Accountants (IICFA) of USA

But other spaces too are exposed to fraud, which is why the
scope of forensic auditing is getting wider. What’s more,
Chartered Accountants, MBA’s 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 formal 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 insides 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 a sector.
But there are other reasons why demand maybe rising.
Provisions of the new companies at 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 there whistle blowing
responsibilities. Objections must be documented, and now at
the Act defines fraud and safeguards explicitly, ignorance of the
parameters of the either will no longer be a defense.
 WHAT IS FORENSIC ACCOUNTING?

Forensic accounting is a rapidly growing area of accounting

concerned with the detection and prevention of financial fraud
and white-collar criminal activity.
George A. Manning in his book “Financial Investigation and
Forensic Accounting” defines Forensic Accounting as the
science of gathering and presenting financial information in a
form that will be accepted by a court of jurisprudence against
perpetrators of economic crimes. The integration of
accounting,auditing,and investigatives skills yields the speciality
known as Forensic Accounting which focuses very closely on
detecting or preventing accounting fraud.

“Forensic”, according to the Webster's dictionary means,

“Belonging to,used in or suitable to courts of judicature or to
public discussion and debate”. The word Accounting is defined
as “A system of recording and summarizing business and
financial transactions and analyzing, verifying, and recording
the results”. The term Forensic Accounting refers to financial
fraud investigation which includes the analysis of accounting
records to prove or disprove financial fraud and serving as an
export witness in court to prove or disprove the same. Thus,
basically the forensic accounting is the use of accounting for
legal purpose.

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
88th most corrupt nation, the needs for forensic accountants
become all the more profound.
Forensic accounting is the assistance of finance professionals to
settle disputes concerning allegations, fraudulence, suspicion of
fraud and misconduct in business.

Forensic accountants, investigative accountants or expert

accountants may be involved in recovering proceeds of serious
crime and in relation to confiscation proceedings concerning
actual or assumed proceeds of crime or money laundering.

Forensic Investigation:-

The utilization or specialized investigative skills in carrying out

an enquiry conducted in such a manner that the outcome will
have application to a court of law. A Forensic Investigation may
be grounded in accounting, medicine,engineering or some
other discipline.

Forensic Audit:-

An examination of evidence regarding an assertion to

determine its correspondence to establish criteria carried out in
a manner suitable to the court. An example would be a
forensic audit of sales records to determine the quantum of
rent owing under a lease agreement,which is a subject of
litigation.
FORENSIC ACCOUNTING IMPLEMENTATION
IN INDIA

In India, Forensic Accounting has not got its due recognition

even after alarming increase in the complex financial crimes
and lack of adequately trained professional to investigate and
report on the complex financial crimes.the task of Forensic
Accountants is handled by Chartered accountants who apart
from handling traditional practise of auditing as required under
the Companies Act,1956 or Income Tax Act are called upon 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 by CICA.

However, growing financial frauds cases, recent stock markers

scams, failure of non financial banking companies, phenomena
of vanishing companies, and implementation 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 multi disciplinary organization having experts from
financial sectors, capital market, Accountancy, forensic audit,
taxation, law, Information technology, company law, custom
and investigations
In the lexicon of accounting, terms such as fraud auditing,
forensic accounting, fraud examination, fraud investigation,
investigative accounting, litigation support, and valuation
analysis are not clearly defined. Some distinctions apply,
between fraud auditing and forensic accounting, Fraud auditing
involves a specialized approach and methodology to discern
fraud; that is the auditor is looking for evidence or fraud. The
purpose is to prove or disprove a fraud exist. Historically,
forensic accountancy, however, have been called in after
evidence or suspicion of fraud has surfaced through an
allegation, compliant, or discovery.

These experts have been taken care from various organizations

like banks, Securities and Exchange board of India, Comptroller
and Auditor general and concerned organization and
department of the government. However, the main important
law enforcement agency involved directly in combating frauds
is the police, CBI, DRI etc.

Fraud investigation usually encompasses about the same thing

as a fraud audit except investigation typically involves a lot
more non-financial evidence, such as testimony from
interviews, than a fraud audit. So fraud investigation includes
fraud audit bus goes beyond it in gathering non financial
forensic evidence.
 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.

3. To find proof of a crime

4. To present in a way that can stand up in a court of law.

5. To identify the perpetrators of said fraud.

6. To establish the motives and methods used by fraudsters.

7. To prove beyond reasonable doubt the involvement of the

alleged perpetrators.

8. To prove that a business or individual has suffered financial

loss.