ICAI’s forensic accounting and investigation standards to help combat financial irregularities
Aug 29, 2023
Effective July 1, they are mandatory for ICAI members
The recently released forensic accounting and investigation standards of the Institute of Chartered Accountants of India are expected to help auditors detect and combat financial irregularities at India Inc firms. Effective from July 1, the Forensic Accounting and Investigations Standards are mandatory for all members of the ICAI are seen as a crucial step towards improving the quality of forensic accounting and investigation services in the country.
Stakeholders to FAIS including government bodies, regulatory authorities, banks and financial Institutions can also apply these standards to all professionals (including non-ICAI members) and use them as a basis for their own disciplinary process.
Forensic Accounting is gathering and evaluation of evidence by a Professional to interpret and report findings before a Competent Authority.
Experts note that till now there were not any standard regulatory guidelines on forensic accounting and professional used their own means and expertise for undertaking these exercises and have underscored the importance of the new norms given the complexity of corporate transactions.
Srinivasa Rao, Partner & Leader, Risk Advisory Services, Nangia & Co LLP said, “The FAIS Standards, 2023 introduced in July this year are the first of its kind initiative and extremely important given the need for such norms. They provide auditors a rule book for forensic accounting and investigations, which are often required.”
He however, highlighted the need for more training and awareness exercises on these norms to help auditors understand them fully. “It is also my opinion that these standards should have had a more future looking outlook and taken into account advances in digital payments, machine learning and Artificial Intelligence,” Rao further said.
The FAIS are principle-based and mandate only the required outcome on a particular subject matter. It is left to the judgment of the professional to determine the most appropriate procedures which may be deployed to achieve the objective of the standard, the ICAI has explained.
A FAI engagement would be a fact-finding engagement rather than expressing an opinion or providing conclusion and presenting the same in deliverables for presenting the same in court of law. The facts corroborated during the engagement would have to be summed up in a report.
Maneet Pal Singh, Partner, IP Pasricha & Co said that with the unveiling of the Forensic Accounting and Investigation Standards (FAIS) in 2023 by the ICAI, the landscape of the financial industry stands poised for a transformational shift. “The systematic guidelines provide a framework that not only fortifies financial integrity but also fortifies capacity to detect and prevent fraud,” he said, adding that these standards collectively aim to enhance the quality, consistency, and professionalism of forensic accounting practices. This would ultimately contribute to the effectiveness of fraud detection, prevention, and the overall credibility of financial reporting.