Forensic accounting

​​According to International Standard on Auditing (ISA) 550 “Related Parties”, auditors are responsible for identifying, assessing and responding to the risks of material misstatements that may arise from an entity's failure to appropriately account for or disclose related party relationships, transactions or balances. This responsibility exists because financial reporting frameworks establish specific accounting and disclosure requirements for such matters. 

​​You have just completed the forensic investigation where some funds were stolen from your client. You are now preparing to present your evidence in court against the identified fraudsters. 

​ ​​You are the Audit Manager of Daud and Daud Associates, a firm of Certified Public Accountants, responsible for the audit of Bandia Ltd. The Finance Manager of Bandia Ltd. is suspected of embezzling funds through a complex scheme of fake invoices and off-the-book transactions. Your firm has been hired by the directors of Bandia Ltd. to conduct a forensic audit after allegations of financial mismanagement and fraud arose within the organisation. 

​​Evaluate FOUR differences between “forensic audit” and “historical audit” of financial statements.

​​Explain THREE steps in the process of conducting a forensic audit.

​ ​​Describe the following audits and their relevance in modern audit practice: 

​​Annlisa Keya is the financial controller of a leading church organisation in the country. Recently, the chief cashier in the church was suspended for misappropriating cash amounting to Sh.2 million over a period of six months. 

​​Radar Ltd. is a large private company that organises conferences, meetings and celebrations for other companies. The company was set up ten years ago by S and J who are the majority shareholders. The company employs over 300 staff in its 25 offices. 

​​(i) Some institutions have questioned why financial auditors do not detect more fraud. The truth, however, is that the processes of financial audits are different from those of fraud audits. 

​​"To an external observer, financial audits and forensic audits may look similar. Both types of audit closely examine and confirm accounting records, using fairly similar methods. However, this could be as far as the similarities go". The above statement was extracted from a presentation made during one of the conferences held by a national professional accountancy institute. 

​​Discuss the procedures involved in applying forensic auditing in fraud investigations.

​​You are the auditor of a company with branches spread throughout the region. The turnover for the year ended 30 June 2018 was Sh.3,125 million, the profit before tax was Sh.187.5 million and the net assets were Sh.1,187.5 million. 

​​ Describe three objectives of a forensic investigation.

​​The role of forensic accountants today is gaining momentum, catalysed by the increasing complexity and sophistication of financial crimes. According to a recent global economic crime and fraud survey published by a leading accountancy firm. 49% of organisations globally reported that they had been victims of fraud and economic crimes. 

​​ Distinguish between "forensic accounting" and "forensic audit".

​​Kenya Construction Ltd. (KCL), a company involved in construction of residential houses for sale, has sued their outgoing general manager over matters of financial impropriety. Kelly Limited, which owns 70% of the shares in KCL is also a complainant against the general manager of KCL on the basis that Sh.60 million advanced by the company to KCL was not refunded. The High Court has ordered the lawyers representing the parties in the above case to liaise with their clients and appoint an independent auditor who would scrutinise the documents submitted by the general manager as ordered by the Court. Thereafter, the independent auditor is to file a report to the Court. 

​​Your audit client, Informat Solutions Ltd., has requested your audit firm to undertake a forensic investigation related to a suspected payroll fraud at the company. 

​​Zakayo and Associates were invited to tender for the audit of Premier Enterprises Ltd. for the financial year ended 31 December 2015. The firm was awarded the tender as it was the most competitive. The firm had used a low balling strategy when submitting their tender. During the course of the audit, the auditors have suspected the company is involved in money laundering activities.

​​You are a manager in an audit firm and double up as the head of the forensic investigation department. Your audit firm has recently been appointed the auditors of Afrokeen Manufacturers Ltd. for the year ending 31 December 2015. The directors of Afrokeen Manufacturers Ltd. have contacted your audit firm regarding a suspected fraud relating to the company's payroll. You have been assigned to undertake a forensic investigation and have held preliminary discussions with the finance director of the company. 

​​You are an audit manager in Hasibu and Co. working on the audit of Safari Group (The Group), whose financial year ended on 31 March 2015. This is the first time you have worked on group audit. The draft consolidated financia! statements recognise profits before tax of Sh.600 million (2014 - Sh.900 million) and total assets of Sh.900 million (2014 - Sh.820 million). The group manufactures equipment used in telecommunication industry.