Specialised Services
Forensic Audit & Investigation
A plain-language guide to how forensic accounting and financial investigation work: when they are relevant, what they produce, and how evidence is handled from the first briefing to the final report.
01 Overview
What a forensic audit is, and what it is not
A forensic audit is a structured examination of financial records, transactions and supporting documents, carried out to establish facts about a specific concern. Where a routine audit asks whether financial statements present a true and fair view, forensic accounting asks a narrower question: what happened, how, when, and with what effect on the numbers.
The work is often described as a fraud investigation or financial investigation, but not every engagement involves wrongdoing. Some start with an unexplained variance, a disputed account, or a need to reconstruct records after a system failure. The method is the same: define the question, preserve the evidence, test it, and report only what the evidence supports.
Findings may feed a regulatory response, a board decision, an insurance claim or formal litigation support. Where a matter turns into a tax dispute, our Income Tax Litigation work picks up from the documented position.
02 Relevance
When an investigation becomes relevant
A forensic review is usually considered when ordinary reviews cannot settle a question. Typical situations include:
- Suspected misappropriation, inflated expenses, or diversion of funds
- Partner, shareholder or lender disputes that depend on what the books actually show
- Whistleblower complaints or management concerns that need a documented, impartial inquiry
- Unexplained gaps between bank, stock, receivable and ledger records
- Pre-transaction concerns about the reliability of a counterparty’s numbers
- Authority queries or notices that require reconstructed, defensible records
Where the trigger is a tax authority communication, the first step is often an Income Tax Notice Reply, and later stages may involve Income Tax Appeals. For indirect tax concerns, a GST Health Checkup & Due Diligence can help establish a baseline before deeper work begins.
03 Scope and outputs
What is examined and what is delivered
Scope is agreed in writing before work begins. A narrow scope keeps the inquiry proportionate; a wider one is justified only where early findings point beyond the original question.
Scope typically covers
- Transaction tracing across bank, ledger and sub-ledger records
- Evidence review of invoices, contracts, approvals and correspondence
- Assessment of internal controls that allowed an irregularity to occur
- Quantification of financial impact, with the basis shown
Outputs typically include
- A written report setting out facts, method and limitations
- Schedules and working papers that support each finding
- Control observations and practical remediation points
- Documentation suitable for litigation support or regulatory submissions
04 Distinctions
How it differs from other audits
The word audit covers several different engagements. Each has its own purpose, standard and audience, and a forensic assignment is not a substitute for any of them.
Statutory audit
Required by law for specified entities, it gives an opinion on whether financial statements are free of material misstatement. It relies on sampling and is not designed to detect every irregularity.
Internal audit
An ongoing management function that tests risk management and internal controls against policy. It is periodic and preventive, rather than a targeted inquiry into a specific event.
Tax audit
Examines compliance with tax provisions and reports prescribed particulars. For wider context, see our Income Tax Services. It does not investigate the intent or mechanics behind a transaction.
Forensic audit
Event-driven and evidence-led. It targets a defined concern, traces transactions end to end, and produces findings that can withstand scrutiny by a court, regulator or counterparty.
05 Red flags
Signals worth a closer look
A red flag is an indicator, not a conclusion. Most have innocent explanations, which is why they are tested rather than assumed.
- Round-figure or just-below-threshold payments recurring across vendors
- Vendors or employees sharing addresses, bank accounts or contact details
- Reluctance to share records, or records that arrive late and in altered form
- Weak segregation of duties, with one person initiating and approving payments
- Unusual journal entries near period-end or after books are closed
- Cash flow or margins that diverge from sector norms without explanation
- Mismatches between GST returns, e-invoices and books of account
Indirect tax mismatches in particular may call for early advice through GST Litigation & Appeals, while governance gaps are often addressed through Corporate & Secretarial Compliance Services.
06 Process
How an engagement proceeds
Six stages, in a fixed order. Skipping ahead, especially past evidence preservation, weakens everything that follows. The general approach mirrors Our Work Process, adapted for investigative work.
- Briefing. We confirm the question to be answered, the people involved, the period under review, and who may see the findings. Scope and limits are recorded in writing.
- Evidence preservation. Records are secured in their original state before anyone works on them: forensic copies of electronic data, a log of who handed over what, and controlled access thereafter.
- Document review. Source documents are read against the books. Gaps, duplicates, alterations and missing approvals are noted without drawing conclusions.
- Analysis. Transactions are traced, reconciled and tested against expectations. Hypotheses are tried and discarded where the evidence does not support them.
- Reporting. Findings are set out with their basis, limitations and supporting schedules. The report states what is established, what is indicated, and what remains unknown.
- Next steps. The client decides how to proceed: control changes, recovery action, disclosure, or formal proceedings. We can support the response, including through Income Tax Litigation or GST Litigation & Appeals where a tax dimension exists.
07 Records
Records commonly reviewed
The list is shaped by the question. Not every item applies to every matter.
- Bank statements and reconciliations
- General ledger and sub-ledgers
- Vouchers, invoices and e-invoices
- Purchase and sales contracts
- Payroll and expense claims
- Stock and fixed asset registers
- GST and income tax filings
- Emails, approvals and board minutes
08 Discipline
Confidentiality and evidentiary discipline
An investigation is only as reliable as its handling of evidence. Sensitive matters are restricted to a small, named team, and information is shared on a need-to-know basis.
- Original records are never marked up; all work happens on copies
- A chain-of-custody log records every transfer and access
- Working papers show source, method and reviewer for each conclusion
- Findings are stated neutrally and limited to what the evidence supports
09 FAQs
Frequently asked questions
Is a forensic audit the same as a fraud investigation?
They overlap but are not identical. A fraud investigation focuses on a suspected deliberate act. A forensic audit is the wider examination of records that may confirm, explain or rule out that suspicion.
Will a forensic audit prove wrongdoing?
It reports what the evidence shows and what it does not. Legal conclusions about intent or liability are for courts and authorities, not for the accountant.
How long does an engagement take?
It depends on the volume and condition of records and the agreed scope. A defined review may take a few weeks; a multi-year, multi-entity matter takes longer. The timeline is discussed at briefing.
Can the findings be used in litigation support?
That is the reason for the evidentiary discipline described above. Whether and how a report is used is decided with your legal counsel.
What if the concern arises from a tax notice?
Start with the notice itself. Our Income Tax Notice Reply page explains how responses are prepared, and Income Tax Services gives the wider picture.
Contact Us
If a financial concern needs a careful, confidential first conversation, you can reach the firm through the Contact Us page. Please avoid sending sensitive records until scope and handling have been agreed.