Forensic Audit Services
A forensic audit examines books, bank trails and transactions to find out whether money was diverted or misreported, and by whom. Our chartered accountants do the work under ICAI’s Forensic Accounting and Investigation Standards, mandatory for engagements beginning on or after 1 July 2023.
What it is
A statutory audit asks whether the financial statements give a true and fair view. A forensic audit asks a sharper question: what happened to this money, and can we prove it? It traces individual transactions to bank trails and approvals, and ends with findings that hold up before a bank, a tribunal or the police.
No single law makes a forensic audit compulsory. It is ordered by a board or audit committee, by lenders under the RBI’s Master Directions on Fraud Risk Management dated 15 July 2024, by resolution professionals checking transactions under Sections 43, 45, 50 and 66 of the Insolvency and Bankruptcy Code, 2016, or by owners themselves. The work follows ICAI’s Forensic Accounting and Investigation Standards (FAIS).
Who it applies to
You suspect something is wrong
Say a Faridabad auto-parts trader sees purchases from one supplier double while sales stay flat. Before confronting the purchase manager, the owner wants facts.
Your board must answer a complaint
Companies acting on a whistle-blower complaint, an auditor’s remark or a fraud reported to the Central Government in Form ADT-4 under Section 143(12).
You lend, resolve or litigate
Banks reviewing a red-flagged account, insolvency professionals checking for avoidable transactions, and parties needing an independent report for a dispute.
Why it matters
Replace suspicion with evidence
Accusing a partner or employee without proof can backfire legally. A forensic report shows the money trail entry by entry, with the documents behind it.
Put a number on the loss
Recovery talks need a number. We work out how much was lost, when, and through which route.
Close the gap that allowed it
Most frauds succeed because one person controlled both payment and approval. The report closes with control fixes, and our ongoing accounting and compliance support can put them in place.
Forensic audit vs statutory audit
| Statutory audit | Forensic audit | |
|---|---|---|
| Purpose | Opinion on whether the financial statements are true and fair | Find out whether fraud, diversion or misreporting took place, and how |
| Legal basis | Section 139 to 143, Companies Act, 2013 | No fixed section; ordered by the board, lender, resolution professional or owner |
| Coverage | Whole year, on a sample basis | Chosen transactions, often over several years, checked in full |
| Standards | Standards on Auditing | FAIS |
| Output | Audit report with CARO 2020 remarks | Findings report with evidence, loss quantified and people involved |
Here is the catch. A clean statutory audit report does not prove there was no fraud. CARO 2020 clause 3(xi) asks the auditor to report whether any fraud was noticed. It does not ask the auditor to check every voucher for one. That is a forensic audit’s job.
Documents required
Books and ledgers
- Accounting data as a Tally or ERP backup, not just PDF printouts; if the books are behind, our bookkeeping team can rebuild them first
- General ledger, party ledgers and journal entries for the period under review
- Stock, sales and purchase registers
Bank and tax records
- Bank statements for every account, including closed ones
- GST returns, e-way bills and GSTR-2B for the same months (fake-invoice trails surface here, often with a GST notice)
- TDS returns and the Form 26AS / AIS of the entity
Governance papers
- Board or partner minutes and approval limits
- Vendor and customer master data, contracts and agreements
- The complaint or letter that started the review
How it works
Agree the scope in writing
We sign an engagement letter naming the question, the period and the entities covered. FAIS requires it, and it keeps the work on what you need to prove.
Secure the data first
We copy backups, bank statements and emails before anyone is told. Data changed later is hard to rely on.
Trace the money
We test the ledgers for duplicate payments, round-sum entries and vendors sharing a bank account or address with an employee. In practice, the trail often ends at a “supplier” whose account sits with the cashier’s relative. Each flagged item is followed to the bank and the document behind it.
Hear the people involved
Where the scope allows, we interview staff and give the persons concerned a fair chance to explain. Fair process makes the findings harder to challenge.
Report what the evidence shows
You get a written report covering what was examined, each finding with its evidence, the loss and the control gaps. Anything we could not verify is stated as such.
Timelines
Secure the records on day one
Secure backups and bank statements on day one. Everything else in the review rests on them.
Reply to a bank’s show cause notice in 21 days
Under the RBI’s 2024 Master Directions, a borrower gets 21 days to reply to a show cause notice before the bank classifies the account as fraud. Your own forensic review lets you answer on facts.
Expect IBC reviews by day 75 and day 115
Under Regulation 35A of the CIRP Regulations, the resolution professional forms an opinion on avoidable transactions by the 75th day from the insolvency commencement date and decides by the 115th day.
When you need it
Check a partner’s dealings
Picture a two-partner firm in Ballabgarh: one partner runs the cash, the other the factory. Sales routed through a relative’s firm are hard to spot from the shop floor. Get the facts first, then decide on the relationship.
Answer your bank’s red flags
Lenders review accounts showing early warning signals and may order their own forensic audit. An independent view of your records puts you on firmer ground.
Explain figures that do not add up
Stock shortages, unexplained cash gaps or a whistle-blower complaint the board must answer.
Frequently asked questions
What is the difference between a forensic audit and a statutory audit?
A statutory audit gives an opinion on the financial statements; a forensic audit finds out whether a specific fraud or diversion happened. The statutory audit under Sections 139 to 143 of the Companies Act, 2013 is compulsory every year and works on samples. A forensic audit is ordered when there is a specific concern and checks chosen transactions in full. The two work well together; one never replaces the other.
Is a forensic audit mandatory under any law?
No law requires every business to have one. It is triggered by events: a board acting on a fraud report, a lender reviewing a red-flagged account under the RBI’s 15 July 2024 Master Directions, or a resolution professional checking transactions under the Insolvency and Bankruptcy Code. Owners can also order one. Because it is event-driven, you only pay for it when there is a real question to answer.
Who can conduct a forensic audit in India?
In practice, forensic audits are carried out by chartered accountants and firms with investigation experience. Since 1 July 2023, ICAI members must follow the Forensic Accounting and Investigation Standards (FAIS) for engagements beginning on or after that date. The standards cover independence, evidence and reporting. A report prepared under FAIS is easier to defend before a bank, a tribunal or an investigating agency.
How long does a forensic audit take?
It depends on the scope: one vendor over one year is a short exercise, while a group of companies over five years takes much longer. Clean Tally backups and complete bank statements shorten the work. We put an estimated timeline in the engagement letter once we know the period, the entities and the records available, so you can plan around it.
Will the people under suspicion know about the audit?
Not at the start, if you prefer. We secure data before the review is announced, so records cannot be changed. Later, where the scope allows, the persons concerned get a chance to explain. The Supreme Court has held that banks must hear a borrower before classifying an account as fraud, and fair process strengthens any report. We agree the confidentiality terms with you at the outset.
Can a forensic audit report be used in court?
Yes, a forensic report can be relied on as evidence, though its use depends on the proceeding. Banks use reports in fraud classification, resolution professionals in NCLT applications under Sections 43, 45, 50 and 66 of the IBC, and owners in civil and criminal complaints. Filing a complaint or a petition needs a practising advocate. We work with your advocate so the findings are presented properly.
What does a forensic audit report contain?
It contains the scope, the records examined, the procedures followed, each finding with its evidence, the amount involved and the control gaps. Under FAIS, limitations are disclosed clearly, for example records that were not provided. The report states facts and does not pronounce anyone guilty; that is for the courts. You get a clear document you can act on.
What is the punishment for fraud under the Companies Act?
Section 447 of the Companies Act, 2013 provides imprisonment of six months to ten years and a fine of at least the amount involved, up to three times that amount. This applies where the fraud involves at least ₹10 lakh or 1% of turnover, whichever is lower. Smaller frauds not involving public interest carry up to five years or a fine up to ₹50 lakh. A forensic report establishes the facts on which these provisions turn.
Can a small business or partnership firm get a forensic audit?
Yes, size does not matter. In family firms one trusted person often handles both cash and books, which is exactly the risk a review tests. The scope is simply smaller: one bank account, one vendor or one period. A focused review of a few months of transactions often answers the question without a large engagement.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
There is no government fee for a forensic audit. Our fee depends on the period, the entities and bank accounts covered, and the state of the records.
Ready to begin?
Tell us what looks wrong and since when, and we will propose a focused scope before any work begins.