Page 323 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

17 Due Diligence, Investigation &

Forensic Audit

Case Study – K, a CA final student
Definitions
Due Diligence: Precautionary measures taken before entering into an agreement, not exclusive to Chartered
Accountants.
Investigation: Establishing facts or assessing situations for specific purposes, often undertaken by Chartered
Accountants.
Forensic Accounting: Using accounting skills to collect evidence for potential or actual litigation, involves
gathering facts suitable for court or regulatory bodies.

Case Study
Company Profile: Surat-based diamond company involved in import, export, and domestic sales, availed
credit facilities worth 250 crores from a consortium of 5 banks.
Issue: The company was declared NPA due to failure in repayment, overdrawn accounts, and devolved LCs.
IBA Involvement: Forensic accounting conducted by an IBA empanelled firm.

Forensic Accounting Approach
Data Review: Analyzing data over time to identify red flags using computer-assisted techniques.
Documentation: Reviewing documents and gathering market intelligence.
Interviews: Conducting interviews with identified employees for information.

Analysis
Credit Assessment: Evaluating if the credit availed was necessary and if it was proportionate to the company's
needs.
Transaction Review: Analyzing transactions, including those with sister concerns, to identify any fund
diversion or siphoning.
Forex Transactions: Investigating forex transactions to ensure they align with imports and exports.

Standards
FAIS: Existence of Forensic Accounting and Investigation Standards to enhance the quality of services
rendered by Chartered Accountants.

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