Forensic Audit in the Corporate Sector to Tackle With Financial Frauds

Nov 19, 2020


A forensic audit is seen as a need of the hour to boost India's corporate culture. Forensic Audit is a field of finance in which investigative expertise and financial acuity are mixed. Forensic Audit plays an imperative role in helping businesses to preserve productivity and value in the option of timely identification, prevention and enforcement of corporate fraud and relation to the due investigation. It is a mix-tool for accounting and investigation.

In the last decade, economic offences have risen significantly. Due to the exponential rise in financial fraud and white-collar crimes, forensic accounting has come to the fore, as is evident from media stores that report on economic crimes committed in communities around the country on an almost daily basis. For a country that needs investment, cracking down on fraud is important. White-collar crimes in corporate India, according to the KPMG Fraud Report, in the last few years have seen a significant rise. Between 2010 and the same study in 2012, the rate of fraud increased by 10 per cent. It's got the negative effects on foreign investors and India's entrepreneurial spirit. Corruption is prevalent in the Indian company and greases the palms of the standard are for business associates.


  • Sections 235 and 237 of the Companies Act, 1956- allows the Central Government to investigate a company's books of accounts, direct, special Audit, order an investigation into a company's affairs, and initiate proceedings for breach of the Act's provisions.
  • Sick Manufacturing Companies Act regulations integrated into the Companies Act, 1956-The Companies Act, 1956, Section 424A (5) authorises the National Company Law Tribunal (NCLT) to investigate as a preliminary question whether the company is a sick industrial enterprise under section 2(46AA).

The tribunal is empowered by section 424B of the Companies Act, 1956, to make such inquiries as it may consider fit to decide if any industrial company has become a sick industrial company.

  • SEBI Act, 1992- Regulation 11 C of the SEBI Act, 1992 empowers SEBI to guide any person to examine, in a manner harmful to investors or the securities market, the affairs of intermediaries or brokers affiliated with the securities market whose transactions in securities are dealt with.
  • Insurance Act, 1938- The IRDA is allowed by section 33 of the Act to direct any individual (Investigating Authority) to investigate the affairs of any insurer.
  • Prevention of the Money-Laundering Act, 2002-Section 3 of the Act describes the offence of money laundering as the participation of a person in any crime-related process or operation and the projection of it as untainted property, where the scope of incorporating forensic audits can be seen.
  • The Companies (Auditor's Report) Order, 2003- The Act requires the auditor to report to the effect that if a large portion of the fixed assets were disposed of during the year if the status of the current concern was affected.


It has been noted that India's financial scams are rampant due to a lack of strict supervisory authority. Suppose the quantum is considered, losses from scams like this. They are an opener to the eye.

  • A fraud involving about Rs. 8000 crore was Satyam's scam.
  • A securities fraud is diverting funds to the tune of Rs. Harshad Mehta triggered 4000 crores.
  • KetanPareskh walked in the footsteps of Harshad Mehta to swindle crores of bank rupees. A loss of over Rs. 1200 resulted in the CR Bhanshali scam.
  • When CBI arrested him for his involvement in the stock fraud of Rs, five hundred ninety-five crores, Dinesh Dalmia, was the Managing Director of DSQ Software Limited.
  • The scam caused Adbul Karim Telgi to lose Rs.171.33 crore.

It can be concluded that India has already suffered major losses due to a rapid rise inWhite-collar violations and the perception that our law enforcement authorities do not have enough knowledge or time to identify fraud. Also, Forensic Accounting is based in India in an infancy state. In India, it creates an untraded region; stricter implementation of the law is needed.