So,
what exactly is a forensic audit?
Hendi Yogi Prabowo, THE DIRECTOR OF THE CENTER FOR FORENSIC
ACCOUNTING STUDIES AT THE DEPARTMENT OF ACCOUNTING OF THE ISLAMIC UNIVERSITY OF
INDONESIA, YOGYAKARTA
Sumber
: JAKARTA POST, 2 Januari 2012
Ever since the completion of the forensic
audit report on the Bank Century case and its submission to the House of
Representatives (DPR) by the Supreme Audit Agency (BPK), the name “forensic
audit” was suddenly all over the news again. The report reveals 13 findings of
possible fraudulent acts surrounding the Bank Century scandal.
Nevertheless, many questions arise regarding whether or not such findings will solve the Century case. House Deputy Speaker Pramono Anung, for example, argued that he is unsure if the BPK’s forensic audit’s result on the Century scandal will solve the case.
He further proposes that it can only be solved if the Corruption Eradication Commission (KPK) steps in and works independently on the case. But what is this “forensic audit” people are talking so much about?
The term “audit” itself has been around for quite a long time. It simply means assessing the compliance against a certain standard.
In the accounting world, “financial audit” is a process of verifying an entity’s financial statements to express an opinion that is intended to provide reasonable assurance that the statements are presented fairly in all material respects according to the existing financial reporting framework.
The audit itself is performed under a “Generally Accepted Auditing Standards” that also serves as a “how-to” guideline for the auditors in doing their jobs.
On the other hand, a forensic audit is a “problem-based” process rather than a “rule-based” one. Defined by Bologna and Lindquist as the use of accounting skills and other relevant knowledge to unresolved issues within the context of rules of evidence, unlike the ordinary financial audit, there are no generally accepted “how-to” rules to be used in the process.
This is primarily due to the fact that fraud cases can be very different throughout the world. This also explains the fact that the audit process itself is often called by different names, such as “fraud audit”, “fraud examination”, “financial forensics”, to name a few.
The “problem-based” nature of forensic audit processes is in itself strength as well as a challenge. On the one hand, unlike the conventional audit, a forensic audit is very adaptive and flexible in terms of methods and techniques depending on the issues that need to be solved.
On the other hand, the challenge of the process lies within the fact that it can be difficult to measure the quality of the works performed by the auditors.
This is evidenced in, for example, the debates regarding whether or not the BPK’s auditors have done their job well. The differences in expectations regarding the result of the forensic audit may have been the cause for this problem.
In practice, whereas the possible results of ordinary financial audit is pretty much predictable (e.g. unqualified, qualified, disclaimer or adverse opinion), the outcome of a forensic audit is far more unpredictable. For example, a forensic auditor may find that fraud has occurred within an organization.
However, there will be more than a few occasions where they will find that all allegations of fraud are wrong and that no misbehavior occurred whatsoever.
The absence of any “how-to” standard does not mean that forensic audits are conducted entirely without a plan. For this matter, forensic auditors will normally resort to the so-called “best practices” in planning their audits.
Based on common worldwide practice, for example, the entire process is started by the establishment of a sufficient predication based on preliminary “red flags” that fraud may have occurred. Subsequently, preliminary evidence gathering is conducted continued by the formulation of the so-called “hypotheses” that are basically a set of predetermined questions aimed to be answered by the audit such as: “Does fraud really occur?”, “If fraud does occur, then who is the perpetrator and how did he or she do it?”, and “How much has fraud cost the organization?”. Without clear “hypotheses”, the entire course of the investigation will lose its focus and resources will be wasted without bringing the desired results.
In principle, the “hypotheses” are then tested by collecting further data and information through means such document analysis, investigative interviews and direct observations.
A key to success in this stage is maintaining its subject’s (e.g. alleged offenders) settings so that problems involving alleged offenders escaping, disappearing or manipulating evidence will be less likely to occur.
To maintain its subject’s natural setting, it is important for a forensic audit to be as time efficient as possible to, for example, diminish offender opportunities to dispose of or alter evidences.
Regarding the use of “best practice” as a reference in planning and executing a successful forensic audit, it is noteworthy that auditors must consider its relevance.
In the case of forensic audits in Indonesia, just as in other countries, it is essential for forensic audit experts to sit together and formulate the most appropriate “best practice” to be used as a guideline in the country.
This is important because although Indonesian auditors can always refer to other countries’ “best practice” in performing forensic audits, the “problem-based” nature of the process also means that such guidelines are formulated based on the most common problems involving fraud in each respective country.
Although fraud is a global problem, despite some similarities trends often vary across countries, as do investigation methods. An investigation method that works well in one country may lose its effectiveness in another part of the world.
For example, the BPK’s forensic audit report states that one of the main obstacles in the course of investigation is insufficient access to required documents, such as those used by law enforcers in their fraud investigations and prosecution.
This implies that testing predetermined fraud “hypotheses” using the document analysis method in Indonesia cannot be expected to work as effectively as in other countries.
In Australia, for example, obtaining a copy of a recent court decision or any other public document can be as easy as downloading them from the Internet.
In other words, the effectiveness of fraud investigation by means of document analysis is highly dependent on the quality of data management within the country.
With regard to this limitation, Indonesian forensic auditors need to be resourceful in obtaining the required information from other sources, such as investigative interviews and direct observation.
Regardless of the obstacles that forensic auditors may face in performing their work, the fact is that forensic audit skills are currently in high demand in Indonesia.
Cases of fraud have haunted the country for decades but need to be addressed immediately and forensic audits are an essential means for doing so. ●
Nevertheless, many questions arise regarding whether or not such findings will solve the Century case. House Deputy Speaker Pramono Anung, for example, argued that he is unsure if the BPK’s forensic audit’s result on the Century scandal will solve the case.
He further proposes that it can only be solved if the Corruption Eradication Commission (KPK) steps in and works independently on the case. But what is this “forensic audit” people are talking so much about?
The term “audit” itself has been around for quite a long time. It simply means assessing the compliance against a certain standard.
In the accounting world, “financial audit” is a process of verifying an entity’s financial statements to express an opinion that is intended to provide reasonable assurance that the statements are presented fairly in all material respects according to the existing financial reporting framework.
The audit itself is performed under a “Generally Accepted Auditing Standards” that also serves as a “how-to” guideline for the auditors in doing their jobs.
On the other hand, a forensic audit is a “problem-based” process rather than a “rule-based” one. Defined by Bologna and Lindquist as the use of accounting skills and other relevant knowledge to unresolved issues within the context of rules of evidence, unlike the ordinary financial audit, there are no generally accepted “how-to” rules to be used in the process.
This is primarily due to the fact that fraud cases can be very different throughout the world. This also explains the fact that the audit process itself is often called by different names, such as “fraud audit”, “fraud examination”, “financial forensics”, to name a few.
The “problem-based” nature of forensic audit processes is in itself strength as well as a challenge. On the one hand, unlike the conventional audit, a forensic audit is very adaptive and flexible in terms of methods and techniques depending on the issues that need to be solved.
On the other hand, the challenge of the process lies within the fact that it can be difficult to measure the quality of the works performed by the auditors.
This is evidenced in, for example, the debates regarding whether or not the BPK’s auditors have done their job well. The differences in expectations regarding the result of the forensic audit may have been the cause for this problem.
In practice, whereas the possible results of ordinary financial audit is pretty much predictable (e.g. unqualified, qualified, disclaimer or adverse opinion), the outcome of a forensic audit is far more unpredictable. For example, a forensic auditor may find that fraud has occurred within an organization.
However, there will be more than a few occasions where they will find that all allegations of fraud are wrong and that no misbehavior occurred whatsoever.
The absence of any “how-to” standard does not mean that forensic audits are conducted entirely without a plan. For this matter, forensic auditors will normally resort to the so-called “best practices” in planning their audits.
Based on common worldwide practice, for example, the entire process is started by the establishment of a sufficient predication based on preliminary “red flags” that fraud may have occurred. Subsequently, preliminary evidence gathering is conducted continued by the formulation of the so-called “hypotheses” that are basically a set of predetermined questions aimed to be answered by the audit such as: “Does fraud really occur?”, “If fraud does occur, then who is the perpetrator and how did he or she do it?”, and “How much has fraud cost the organization?”. Without clear “hypotheses”, the entire course of the investigation will lose its focus and resources will be wasted without bringing the desired results.
In principle, the “hypotheses” are then tested by collecting further data and information through means such document analysis, investigative interviews and direct observations.
A key to success in this stage is maintaining its subject’s (e.g. alleged offenders) settings so that problems involving alleged offenders escaping, disappearing or manipulating evidence will be less likely to occur.
To maintain its subject’s natural setting, it is important for a forensic audit to be as time efficient as possible to, for example, diminish offender opportunities to dispose of or alter evidences.
Regarding the use of “best practice” as a reference in planning and executing a successful forensic audit, it is noteworthy that auditors must consider its relevance.
In the case of forensic audits in Indonesia, just as in other countries, it is essential for forensic audit experts to sit together and formulate the most appropriate “best practice” to be used as a guideline in the country.
This is important because although Indonesian auditors can always refer to other countries’ “best practice” in performing forensic audits, the “problem-based” nature of the process also means that such guidelines are formulated based on the most common problems involving fraud in each respective country.
Although fraud is a global problem, despite some similarities trends often vary across countries, as do investigation methods. An investigation method that works well in one country may lose its effectiveness in another part of the world.
For example, the BPK’s forensic audit report states that one of the main obstacles in the course of investigation is insufficient access to required documents, such as those used by law enforcers in their fraud investigations and prosecution.
This implies that testing predetermined fraud “hypotheses” using the document analysis method in Indonesia cannot be expected to work as effectively as in other countries.
In Australia, for example, obtaining a copy of a recent court decision or any other public document can be as easy as downloading them from the Internet.
In other words, the effectiveness of fraud investigation by means of document analysis is highly dependent on the quality of data management within the country.
With regard to this limitation, Indonesian forensic auditors need to be resourceful in obtaining the required information from other sources, such as investigative interviews and direct observation.
Regardless of the obstacles that forensic auditors may face in performing their work, the fact is that forensic audit skills are currently in high demand in Indonesia.
Cases of fraud have haunted the country for decades but need to be addressed immediately and forensic audits are an essential means for doing so. ●
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