Forensic Accounting Engagements: Exploring Standards for Comprehensive Planning

“A goal without a plan is just a wish.”

Welcome back to #ForensicForesight, where we continue our fascinating journey into the world of forensic accounting and Financial Fraud Detection/Prevention. In our previous article, we delved into the criticality of planning a forensic accounting engagement, highlighting the unique characteristics that set it apart from other audits.

Today, we venture further into the planning phase of a forensic assignment, where meticulous preparation lays the groundwork for a successful investigation.

In this second part of our planning series, we will dig into the essential elements of the planning stage in forensic accounting and fraud investigation. From exploring the #icai standards and #acfe guidelines to understanding the nuances of planning, we aim to equip you with the knowledge and strategies needed to navigate this important phase effectively.

Get a recap here before we begin!

The ICAI Standards on Forensic Accounting

In the domain of forensic accounting and investigation, the planning phase is a critical aspect that lays the foundation for a successful engagement. It involves setting clear objectives, identifying potential risks, understanding the nature of the engagement, and establishing a framework for the entire process.

To ensure consistency, reliability, and professionalism in such engagements, the Institute of Chartered Accountants of India (ICAI) has developed the Forensic Accounting and Investigation Standards (FAIS). These standards provide guidance and recommendations for professionals regarding the planning phase of a forensic accounting engagement.

Following are some of the FAIS Standards that hint about planning and engagement management in a forensic accounting assignment:

1. FAIS 110: NATURE OF ENGAGEMENT: This standard emphasises the importance of understanding the purpose and scope of the engagement before accepting it. Professionals are required to assess the accounting skills and evidence-discovery capabilities necessary for the engagement. Documentation, such as audit reports and correspondence with stakeholders, helps in clarifying the nature of the engagement.
2. FAIS 120: Fraud Risk: This standard focuses on recognising fraud risks during forensic accounting and investigation engagements. Professionals need to identify fraud indicators, prioritise their work accordingly, and assign appropriate skill sets. Considering fraud risks when reporting the findings of the engagement is crucial for effective decision-making.
3. FAIS 130: LAWS AND REGULATIONS: Engagement-specific laws and regulations play a significant role in conducting forensic engagements. This standard emphasises the need to align the objectives and scope of the engagement with the relevant laws and regulations. Compliance with legal requirements, seeking expert legal advice when necessary, and ensuring a process-driven approach are vital considerations during the planning phase.
4. FAIS 210: ENGAGEMENT OBJECTIVES: This standard highlights the significance of setting clear objectives for the engagement. Professionals must document the main purpose, scope, and expected outcomes of the engagement. Objective-driven planning ensures consistency and enables professionals to deliver the desired results while maintaining professional integrity.
5. FAIS 220: ENGAGEMENT ACCEPTANCE AND APPOINTMENT: This standard deals with the responsibility of agreeing to the terms of engagement. Preliminary due diligence, risk assessment, and obtaining an official engagement letter are crucial steps during this phase. Professionals should evaluate the conditions of the appointment, assess engagement risks, and document any subsequent changes or limitations imposed by stakeholders.
6. FAIS 310: PLANNING THE ASSIGNMENT: This standard addresses the responsibilities of professionals during the planning phase of an assignment. The standard highlights the importance of flexible planning and thorough documentation.

?Key factors to consider in this phase include,

• Having a solid understanding of the business and its environment,
• Taking risk considerations into account,
• Engaging in discussions with stakeholders, involving the Technology Department, and
• Making appropriate resource allocations.

Professionals must ensure that their planning process aligns with the overall scope of work and terms of engagement while also identifying and mitigating risk factors, determining suitable work methodologies, and identifying diverse sources for evidence discovery, as outlined in this standard.

These standards provided by #icai , which is one of its kind, provide a framework for professionals to approach engagements with clarity, professionalism, and adherence to legal and ethical principles.

7 Key Points from FAIS Standards on Planning and Engagement Management:

Following is a summary of the key points indicated by the ICAI’s FAIS standards on planning:

The ACFE Guidelines on Planning

The Association of Certified Fraud Examiners (ACFE) underlines the importance of careful planning and outlines key considerations to prioritise in the planning process. From completing engagement letters to defining investigation goals, identifying team roles, and addressing operational issues, a well-structured investigation plan sets the foundation for success.

The #ACFE provides several key points when it comes to planning a fraud investigation. Even when it is not specific to forensic accounting, some of the important points are discussed here that may also aid in forensic accounting engagement.

1. Establishing formal documentation: Begin by documenting the engagement in a written contract or engagement letter. This formalises the objectives, authorisations, and responsibilities of the fraud examiner, managing client expectations and providing protection in case of disputes.
2. Reviewing available information and defining goals: Thoroughly assess the known information to gain a comprehensive understanding of the key issues. Clearly define the goals to maintain focus, measurability, and achievability throughout the investigation.
3. Identifying relevant stakeholders: Determine the necessary individuals who need to be informed about the investigation. Limit involvement to those directly related to the severity of the incident, the suspect's role, and the required tasks.
4. Determining the scope and time frame: Define the boundaries and extent of the investigation based on the ultimate goals, key issues, required discretion, organisational anti-fraud program, and compliance culture. Establish realistic time parameters with specified start dates, due dates, and consideration of upcoming events. The plan can be organised chronologically, by functional area, by team member, or hierarchically.

1. Assessing the need for law enforcement involvement: Evaluate the seriousness of the matter to determine if law enforcement entities should be engaged for assistance or notification.
2. Defining team roles and addressing operational challenges: Clearly outline the roles, responsibilities, and reporting lines of the team members involved in the investigation. Additionally, consider operational challenges such as gathering facts abroad, language translation, cultural differences, international data privacy laws, and safety concerns for global assignments.
3. Adapting necessary resources: Ensure that the investigation is adequately supported by management, resources, and expertise. Continually refine and modify the plan as circumstances change, and new information emerges.

Key Takeaways in the Planning of a Forensic Accounting and Fraud Investigation Engagement

1. Source assessment
2. Client evaluation
3. Tailored planning
4. Clear objectives
5. Key focus areas
6. Resource allocation
7. Scope management
8. Milestone definition
9. Teamwork
10. Documentation

In the planning phase, we have gained valuable insights into the significance of the engagement letter as a crucial document that offers legal protection and manages expectations and establishes clear timelines. We have also understood the importance of defining the scope, freezing it, and setting milestones to ensure accountability and prevent scope creep. Furthermore, we have recognised that assembling a competent and cohesive team, supported by the right resources, greatly enhances the thoroughness and accuracy of the investigation.

In conclusion, effective planning in forensic accounting and fraud investigations is essential for a successful engagement. By leveraging guidance from esteemed organisations like the ACFE and ICAI, professionals can access standardised frameworks to begin their planning process. These resources provide valuable insights and best practices for assessing the source of work, defining the scope, managing expectations, and setting milestones. By exploring the guidance offered by these organisations, forensic professionals can enhance their understanding of the planning phase and apply industry-recommended approaches to their engagements. Adopting these strategies, along with assembling a skilled team and utilising appropriate resources, ensures a thorough and effective investigation, resulting in accurate findings and successful outcomes for their clients.

Check this space for more insights through #forensicforesight

“Planning is the compass that charts the course, turning dreams into achievable realities and paving the way for success."

About the Author

Dr. (CA) Durgesh Pandey

Durgesh is a highly accomplished forensic accounting and fraud investigation professional.?He holds the distinction of being the first PhD in Forensic Accounting from the National Forensic Sciences University (NFSU), Gujarat, an Institute of National Importance under the Ministry of Home Affairs, Government of India.

He has trained thousands of professionals and law enforcement officials on financial crime investigation.??He is passionate towards research/teaching and?associated with NFSU as professor of practice. He speaks and publishes internationally regularly.