Forensic Audit

Forensic Accounting

Question 1: Define and critically compare the differences between a traditional audit approach and a forensic/fraud audit approach.

Traditional Audit Approach

Traditional audit approach is concern with the examination and evaluation of the company's financial statements. Traditional Auditing was initially adopted by large corporations due to high cost of the process. It was a process that was based on visualization and verification of assets and economic transactions in the financial statements. After many years that is n the beginning of twentieth century, financial audit was reorganize and applied to companies in various spans. At this stage, it began to develop and deepen the concepts such as planning, analysis of internal control systems, sampling techniques and statistical sampling audit tests (Kranacher, Riley, Wells, 2012).

The term audit is concern with the systematic examination and verification of the financial record of the company along with the inventory physical inspection. Auditors usually do not spend so much time in examining and verifying business's books only because they are getting paid, but the main thing is that there are certain particular objectives behind this traditional audit of financial statements. The main goal of audit is to verify financial statement of the company and to state that the statements are true (Wells, 2012).

The things that were used to consider in Traditional Auditing were:

No material Misstatement

Material Misstatement is concern with the incorrect information on financial statements which determine value or stock price of the company. When an auditors audits company's financial statement using traditional procedures, his main aim is to identify the any material which is misstatement like falsified records, inflated profits and any evidence which has not yet been reflected in the company books. The main purpose of this traditional accounting was to certify that there is no material misstatement which exits in financial statement of the company (Vona, 2012).

Integrity

The other is the financial statements integrity which is the main objective of the traditional auditing approach. This means that financial statements should have enough qualities of being honest, sound, sincere and unimpaired. Furthermore, this also increases the confident of the investors and creditors that if audit of the company has financial integrity, company health is better and good.

Substantiation

When auditors uses traditional procedures, the basic aim behind this is the authenticate claims on financial statements. This Substantiation comprises of physical inventory performance of the assets of the business. Lack of substantiation would lack the overall integrity in the financial statements and then nobody would be trusting on audit (Kranacher, Riley, Wells, 2012).

This part is essential for auditing since authenticity is an important area when one is examining company's performance. This emphasis on business knowledge or understanding of the business, in terms of revenues, costs and expenses, sources of financing, trading markets, degree of vulnerability of the entity to context in which it operates.

Assurance

As soon as audit process ends, auditors give assurance that the financial statements follows to the GAAP - generally accepted accounting principles. By giving a surety that book value ...