FORENSIC AUDIT WITH EMPHASIS ON NIGERIA EVIDENCE ACT

INTRODUCTION

Forensic audit has gained increasing popularity in Nigeria and globally. Many factors have been adduced for the growing interest in a forensic audit.  The collapse of the world energy giant, Enron and other big global companies like World come and global crossings as a result of fraudulent practices resulting in increasing loss of confidence in the capital markets by investors. In Nigeria, the situation is not different. The Cadbury(NIG) PLC accounting scandal involving overstatements of the food company's profits to the tune of over 13billion naira did nothing to suit the frayed nerves of Nigerian investors smarting from their losses as a result of the collapse of some Nigerian banks again because of fraudulent activities. The accounting profession has come under severe attack as a result of these failures.  The response of the profession is to look beyond statutory audit, with its inherent limitations, for solutions to corporate scandals and failures(Owojori & Asaolu, 2009). Another reason for the growing influence of forensic audit is that forensic audits are more intensive than regular audits and thus stands a better chance of success(Akenbor, 2014). In some other cases, a regular audit is reputed to have failed out rightly, and forensic audit became the only credible alternative (Eyisi & Ezuwore, 2014).

There is a growing demand for forensic audit service as a result of increasing fraudulent practices in businesses and government agencies around the world in recent time. Often quoted in fraud scandals that almost swallow the corporate world are cases of Enron, Arthur Anderson, and WorldCom. These cases have, therefore, brought forensic auditing to limelight. Forensic audit is seen as summarizing and adapting investigative auditing, criminology, litigation services, and financial skills to uncovering fraud. The increasing complexity of fraud requires that forensic auditing be included in the tools required to successfully investigate and prosecute cases of fraud and those involved in fraudulent practices (Njanike, Dube, and Mashayanye, 2009). Though quite new in Nigeria today, companies’ chief executives have realized that there is need for the services of forensic auditor, as the frequency of fraudulent financial practices have continued to be on the increased. Meanwhile, Arokiasamy and Cristal (2009) had described forensic audit as the application of financial skills and investigative ability within the context of rule of evidence to examine unsettled issues. Also, Linquistn and Bologna (1987) affirmed that forensic accounting as a discipline is made up of fraud knowledge, financial expertise and a sound knowledge and understanding of business reality and the working of the legal system. Forensic audit may be one of the most effective and efficient way to detect, reduce and prevent fraud; hence, forensic accounting is taught as a major course in many educational institutions in some countries of the world. The Institute of Forensic Accountants (IFA) of Nigeria depict forensic auditing is the specialty of accounting that describes forensic auditor/accountant’s engagement resulting from anticipated dispute or litigation. Timbee (2011) opined that there is need for medium sized firms to have forensic accounting department within which expert forensic accountant may specialize in forensic audit and fraud investigation.

Forensic audit is the kind of financial information investigation services that provide by professional forensic accounting firms which normally required by entity as the result of legal purposes.

Forensic audit normally required to have the number of skill and background that add up to the auditing and accounting skill. In general, forensic audit need both accounting skill and auditing skill. This is because the works they performs are related to investigation on financial reporting.

In order to perform an investigation on financial statements as well as financial information, forensic auditor need to deeply understanding how accounting record are performed as well as accounting treatments from the normal accounting treatment to the complex accounting treatment.

Because fraud over financial reporting normally involved with the critical process as well as critical treatment.

In addition to the accounting and auditing skill, forensic auditor also need to the strong analytical skill which is very importance for performing analytical review on the financial transactions. This is sometime call investigation skill.

Since the report that issued by forensic audit mostly use for court purpose, most of them are normally have background in law. This kind of background help them ease their works.

Forensic audit services normally required the license from local authority to be able to offer the services and sometime the license was obtained along with audit and assurance services. This is the reason why some auditing firm also offer forensic audit.

FORENSIC AUDIT INVESTIGATION PROCESS:

The process of performing forensic audit is not much different from the process of audit on financial statements. Auditor need to prepare proper planning including before acceptance, investigation plan, substantive investigation procedure, as well as reporting.

 

ADVANTAGES OF FORENSIC ACCOUNTANTS

A) Forensic accountants are of benefits in the following areas Objectivity and credibility - there is little doubt that an external party would be far more independent and objective than an internal auditor or company accountant who ultimately reports to management on his findings. An established firm of forensic accountants and its team would also have credibility stemming from the firm's reputation, network and track record. Accounting expertise and industry knowledge - an external forensic accountant would add to the organisation's investigation team with breadth and depth of experience and deep industry expertise in handling frauds of the nature encountered by the organisation. Provision of valuable manpower resources - an organisation in the midst of reorganisation and restructuring following a major fraud would hardly have the full-time resources to handle a broad-based exhaustive investigation. The forensic accountant and his team of assistants would provide the much needed experienced resources, thereby freeing the organisation's staff for other more immediate management demands. This is all the more critical when the nature of the fraud calls for management to move quickly to contain the problem and when resources cannot be mobilised in time. Enhanced effectiveness and efficiency - this arises from the additional dimension and depth which experienced individuals in fraud investigation bring with them to focus on the issues at hand. Such individuals are specialists in rooting out fraud and would recognise transactions normally passed over by the organisation's accountants or auditors (www.buzzle.com).

 

B) DISADVANTAGES/CHALLENGES OF FORENSIC AUDITING

 The increased use of forensic accountant breeds the following challenges/disadvantages:

Confidentiality Issue: Since the scrutiny of a company's financial records is done by an external forensic accountant, the chances of leakage of confidential matter are always there. It is true that their code of ethics clearly mentions that forensic accountants and other members involved in the scrutiny must not engage in disclosing confidential data to outsiders, but the possibility of disclosure cannot be nullified.

Increased Chances of Threats and Negative Publicity: If the analysis of a company's financial statements points out the involvement of a particular person in fraudulent activities, there is a significant chance that the person will try to threaten the company to safeguard himself from the trial. Also, any trial that confirms a fraud happening in the company comes under public eye and gains negative publicity, which directly affects the reputation and investor relations of the company. Costs a

Lot of Money: Forensic accounting can be an expensive affair because the procedures which accountants use involve high-end accounting software. If study results have to be presented in a trial, the overall expenditure goes up even further, because the fees of forensic accountants are quite high. This can be a matter of concern for the organization.

Losing Employee Trust: It is quite obvious for employees to feel offended when they come to know that their job is under scrutiny by a third person. If no fraud is identified, employees are left with the feeling that the employer does not have faith in them. Lost trust can be difficult to regain in such cases.

Limited Use of Services: Federal regulations limit the use of services from a single accounting firm. Suppose a company has tied up with one firm for auditing, it cannot ask the firm to provide other services to it. Therefore, a company has to reach out to several firms for carrying out its accounting tasks (www.buzzle.com).