This refers to “Sebi
may order forensic audit
on half a dozen companies” (October 13). Forensic audit
is required when the regulator suspects inadequate or faulty disclosures with regards to actual performance and market value of shares on a consistent basis in relation to other general market indicators. Further, the inexplicable rise or fall in share value of some companies in relation to others in the stock market
leaves scope for suspicion. The surveillance wing of the Securities and Exchange Board of India follows up the annual statutory audit of major firms that repeatedly conceal information or provide inadequate feedback to cover up either non-compliance with disclosure norms or faulty reporting of the same.
In such circumstances, company specific forensic audit
is necessary to ensure that there is accuracy in account maintenance, and proper calculation of profit and loss so that grave error is not covered up under the guise of a general market trends. Forensic audit enables verification of possible diversion of funds. A forensic audit going back over a period of three years may open a Pandora’s box. The accuracy in tax
computation and payment, execution of bank loans, documentation with proper earmarking of securities also enable forensic auditors to ensure accuracy in credit monitoring, matching expenditure with income to assure accuracy in maintenance of account books. Forensic audit ensures a moral code of functioning amidst competition.