||Financial Statement Audit
||The financial statement audit reports to the shareholders and other stakeholders on whether the financial statements present fairly the results for the period.
||The forensic review is directed to the courts as well as the stakeholders and shareholders.
||The financial statement audit is provided for the shareholders.
||The forensic review is generally provided to the clientís lawyer, either external counsel or in-house counsel. On this basis, communications between forensic accountant and lawyer are generally privileged.
||Auditor cannot be a shareholder, officer, director or with any linkages which would cause perceived independence from audit client to be questioned.
||In addition to restrictions for the auditor; forensic accountant should avoid being in a conflict of interest arising from being a supplier to both sides of a dispute or of being the financial statement auditor in a review concerning undetected fraud.
||Financial statement auditors are analytical, methodical and use reasonable scepticism.
||A forensic review endeavours to determine what should have been and uses much more detailed analysis for that assessment. Unusual, complex or convoluted transactions without a valid business reason are scrutinized carefully.
||Financial statement audits are not directed to discovering fraud; they are deductive rather than intuitive.
||The forensic review is focused on addressing red flags concerns and suspicions. The forensic review relies on deductive skills as well as intuitive skills and to identify previously unidentified problems. Forensic accountants often will role play what auditors do.
|Basis of reporting
||A financial statement audit reports on whether the statements examined present fairly in accordance with GAAP and consistent with prior years.
||The forensic review is investigative in its orientation.
Documentation, interviews and other evidence support the reporting on any wrongdoing. The forensic review reports on whether, on the balance of probabilities or beyond a reasonable doubt, improper acts have occurred.
||The financial statement audit concentrates on the one-year period being examined.
||The forensic review looks at the entire period activity, whether it is less than or more than one financial year. The "big picture" is sought.
||Materiality, being the amount that would affect the opinion of the users of the financial statements, is typically set as a percentage of the balance sheet assets and/or as a percentage of the statement of income and expenses.
Transactions below this threshold are generally not examined, as they would be immaterial to the opinion being expressed.
|The forensic review is not limited by quantum issues. It is driven by the concept of substance over form. The emphasis is on addressing the concerns about the organization and in reviewing the documentation to determine if these concerns are warranted, and if so to what extent.
||The financial statement audit concentrates on the accuracy, timeliness and completeness of the recording of the transactions. Limited testing is performed.
||The forensic review looks at the weak links in an organizationís system of internal control. Transactions are reconstructed through third parties, interviews and other evidence. Evidence is carefully gathered and preserved for reporting and for possible use in the courts.
|Documentation review and retention
||The trend in audits is for the "paperless audit" in that the audit files contain a minimum of supporting documentation with the working papers being the main source of audit evidence.
||The forensic review gathers, analyzes, compares and safeguards documentation.
The forensic review examines documents to determine if there are indications of forgery, alternation, and file culling, for example. The reasonableness and underlying purpose of the documents are assessed.
The forensic review endeavours to differentiate between items to "paper" the file and the underlying purpose of the transactions.