Forensic Audit vs. Financial Audit: What’s the Difference?

March 2019 | Article

When a business is looking to examine its current financial health, they need to determine the best approach to take. It’s important to understand the difference between a financial audit, which is normally conducted by Certified Public Accountants (CPAs), and a forensic audit, which is normally conducted by certified fraud examiners (CFEs) and/or individuals certified in financial forensics (CFFs).

A financial audit, sometimes called a financial statement audit, is defined as “the examination if an entity’s financial statement and accompanying disclosure by an independent auditor.” The results of this examination include a report by the auditor attesting to the fairness of presentation of the financial statements and related disclosures. This type of examination is designed to provide a picture of the financial health and performance of public companies. The Security and Exchange Commission (SEC) requires all public companies to have this type of audit conducted on a yearly basis by an independent accounting firm.

Non-public traded companies may also have annual audits conducted to help the ownership, board of supervisors, board of trustees, current or future investors or their financial institution understand the financial health of the business. A financial audit is also designed to protect or identify financial statement fraud and is conducted according to established accounting standards or Generally Accepted Accounting Principles (GAAP).

forensic audit, also known as a forensic examination, is defined as “an examination of financial records to find any illegal financial activity.” The term forensic itself is defined as “belonging to, used in, or suitable to courts of judicature or to public discussion and debate.” A forensic audit employs different types of investigative techniques than those used in a financial audit. Also, a forensic audit is used to gather evidence to use in a civil or criminal court of law.

With such a difference between these types of audits, the first thing to determine is the “why” and identify the need for an audit. Are you looking to determine the company’s financial health for its current or potential investors? Do you want to examine whether your organization appears to be losing or is it losing money? Perhaps you need is support with litigation or a potential court case. The decision to conduct a forensic audit is the obvious choice if someone is caught misappropriating money—the greatest threat to any organization is its own employees.

Eide Bailly’s team includes CPAs with accounting and audit process experience in various types of industries as well as CFEs with a wide variety of forensic accounting and auditing experience. Our CPAs help organizations understand the financial position of their company, while our forensic accountants help organizations understand the many different types of fraud schemes occurring in the business world. Forensic accountants can also help with internal control testing by conducting an Internal Control Examination, or ICE. An ICE is designed to identify any potential opportunities for employees to manipulate current company controls to misappropriate funds or assets from the company.

For help determining what kind of audit will best serve your situation, contact us today.

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