Forensic Audit & Fraud Investigation: Who Needs It and Who Does Not
Whether Forensic Audit & Fraud Investigation applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Forensic Audit & Fraud Investigation page.
How is a forensic audit different from a statutory audit?
A statutory audit under Section 143 of the Companies Act 2013 is a mandatory, annual, retrospective examination of financial statements, using test checks and sampling, to form an opinion on whether they present a true and fair view. A forensic audit is investigative, triggered by a specific red flag, and aims to establish facts with evidentiary rigour sufficient for litigation, arbitration, or regulatory action. A statutory auditor who encounters an indication of fraud during the routine audit has a separate obligation under Section 143(12) to report it — but that reporting duty is not itself a forensic investigation; it typically triggers one.
In practice: We are sometimes asked why the statutory auditor 'did not catch' a fraud that a later forensic audit uncovers. Statutory audit is a sampling-based, reasonable-assurance exercise across the entire financial statements — it is not designed to detect every instance of deliberate concealment, particularly collusive fraud designed specifically to evade normal controls and audit procedures.
Who typically commissions a forensic audit — and who can commission one?
A forensic audit can be commissioned by the company's Board or Audit Committee, promoters or majority shareholders, a lender or consortium of banks (often as part of RBI's fraud classification process), legal counsel on behalf of a client in a dispute, an Insolvency Resolution Professional under the Insolvency and Bankruptcy Code, or occasionally directed by a regulator, tribunal, or court. Anyone with a legitimate interest and the standing to authorise the investigation and grant access to records can commission one.
In practice: We always confirm the commissioning party has the actual authority to grant access to the records and individuals the investigation will need. A forensic audit commissioned by one director without Board authority, in a company where the suspected individual is another director with equal authority, is a scenario we scope very carefully before proceeding.
Can a forensic audit report be used as evidence in court?
A forensic audit report itself is an expert opinion, and the Chartered Accountant who prepares it can be called as an expert witness under the Indian Evidence Act framework (now the Bharatiya Sakshya Adhiniyam) to explain findings and be cross-examined. Whether the underlying documents and evidence referenced are independently admissible depends on how they were gathered, preserved, and authenticated — which is precisely why chain-of-custody discipline during the investigation matters so much. A report built on properly preserved, authenticated evidence carries far more weight than one built on unverified internal documents alone.
In practice: We work closely with legal counsel from the outset in any engagement where litigation is a realistic outcome — not just at the report-drafting stage. Evidentiary requirements are far easier to satisfy if they are designed into the investigation from Day 1 than retrofitted after fieldwork is complete.
How does forensic audit interact with fidelity/crime insurance claims?
Most fidelity guarantee or crime insurance policies require the insured to notify the insurer promptly on discovery of a loss and to provide documented proof of the loss amount and circumstances as a condition of the claim. A forensic audit report — with its transaction-level quantification and evidence trail — is typically the core document supporting such a claim. Insurers frequently engage their own forensic accountant to review or challenge the claimed quantum, so the rigour of the original investigation directly affects the claim's success.
In practice: Check your policy's notification timeline before commissioning the forensic audit — many fidelity policies have a strict notice period from discovery of loss, and a lengthy internal deliberation before engaging a forensic auditor can itself jeopardise the claim regardless of how strong the eventual evidence is.
Our lender has asked us to bear the cost of the forensic audit they are commissioning. Is this normal?
It is common practice for banks to require the borrower to bear the cost of a lender-commissioned forensic audit, particularly where it is triggered by irregularities in the borrower's own account. This is typically a condition specified in the loan agreement or communicated as part of the bank's process under RBI's fraud risk management framework. You should still understand the scope of that audit and consider whether an independent parallel review, engaged directly by you, is warranted to represent your interests.
In practice: We frequently advise borrowers in this exact situation — bearing the cost of the bank's forensic auditor while also engaging PNPC independently to review the same facts, so the borrower has an informed, independent view before responding to the bank's findings rather than relying solely on a report commissioned by the counterparty.
How does PNPC maintain confidentiality during a forensic engagement?
Every forensic engagement begins with signed non-disclosure undertakings from all PNPC team members involved, a defined and limited circle of individuals at the client who are briefed on the investigation's existence, secure and access-controlled document handling, and communication protocols that avoid discussing the investigation over channels that could be intercepted or discovered by the subject. Given that many engagements depend on the subject remaining unaware until evidence is secured, confidentiality discipline is treated as a core deliverable, not an afterthought.
In practice: We have, on occasion, declined to communicate findings over a client's regular email system where we had reason to believe the suspected individual had access to that system or its backups — using alternative, controlled channels instead. This level of operational discipline is standard practice for us, not an exceptional precaution.
Can a forensic audit be conducted across both an Indian company and its related UAE entity?
Yes. PNPC operates from Chennai, Bangalore, Hyderabad, and Dubai, which allows a single engagement team to trace fund flows and examine records across an Indian entity and a related UAE entity without the loss of context that occurs when two separate, unconnected firms handle each jurisdiction independently. Cross-border investigations also require awareness of FEMA reporting obligations on the India side and UAE regulatory and banking-secrecy considerations on the other, which our combined presence is structured to handle coherently.
In practice: Cross-border diversion cases — where funds are moved from an Indian entity to a related UAE entity through inflated invoicing or disguised service fees — are exactly the scenario where a firm without presence in both jurisdictions loses the thread. A firm with a presence in both jurisdictions can follow the money across the border within one engagement team.
What qualifications should the team conducting our forensic audit have?
Look for Chartered Accountants with specific forensic accounting and investigation experience — not general audit experience alone — ideally with exposure to ICAI's FAIS framework, experience working alongside legal counsel on evidentiary matters, and access to digital forensics specialists where the engagement may require them. Ask specifically how many forensic investigations the proposed team has led (as distinct from statutory audits), and whether any of that work has been tested in litigation, arbitration, or a regulatory referral.
In practice: Ask any prospective forensic firm about its specific experience and the types of matters it has handled — for example cross-border diversion, IBC transaction audits, bank-mandated investigations, and family business disputes. If a firm cannot speak specifically to forensic engagement experience beyond routine statutory audit work, that is a fair question to press on before engaging them.
Where this sits in the wider engagement
Forensic Audit & Fraud Investigation rarely arrives on its own. The statutory basis and the current requirements are set out on the Forensic Audit & Fraud Investigation service page, and the related services are grouped under Audit Assurance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Forensic Audit & Fraud Investigation we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.