Strengthening Forensic Auditing: ICAI’s New Qualifications and Industry Demands
The Institute of Chartered Accountants of India (ICAI) is in the process of developing guidelines to enforce compulsory qualifications for professionals involved in forensic audits.
The ICAI intends to present its proposal to the Ministry of Corporate Affairs (MCA), outlining criteria that include the mandatory completion of the Forensic Standards Course and ICAI membership.
Currently, there are no specific qualification requirements for forensic auditors in India, allowing any company or individual to claim this title, according to an ICAI source.
With the surge in cybercrimes and financial fraud, the demand for forensic accounting and fraud detection specialists has significantly increased. Experts believe that the rising need for forensic audits is a direct result of numerous corporate scandals and heightened regulatory efforts aimed at combating money laundering and tax evasion.
To ensure comprehensive feedback, the ICAI is also engaging with the Securities and Exchange Board of India (SEBI) regarding the state of forensic auditing in the country.
However, experts caution that conducting a forensic audit requires specialized skills. A forensic audit scrutinizes financial records to uncover potential fraud, misconduct, or inconsistencies.
For instance, a senior chartered accountant noted the difference between a conventional auditor and a forensic auditor: While a typical auditor would reference a land deed and record the details as they are, a forensic auditor would verify the authenticity of the deed and the stamp paper used, following the leads wherever they may lead.
The ICAI’s forensic accounting course aims to equip professionals with the skills to recognize early warning signs, red flags, and prevalent fraud scenarios. The curriculum includes mathematical and quantitative investigative methods, along with interviewing techniques.
According to forensic audit experts, though the course provides essential training in fraud detection, digital forensics, and case analysis, further enhancement is necessary to remain pertinent in today’s global, technology-oriented landscape.
Jidesh Kumar, managing partner at King Stubb & Kasiva, Advocates and Attorneys, remarked, “Incorporating advanced tools, cross-border investigative methods, and practical modules would align the course with international standards and better prepare professionals for complex challenges.”
In July 2023, the CA institute issued revised Forensic Accounting and Investigation Standards (FAIS). Kumar emphasized that the lack of a specific regulatory framework for forensic auditing in India necessitates reliance on indirect mandates derived from the Companies Act, SEBI regulations, and RBI guidelines. “This regulatory gap, coupled with delays in judicial processes and a shortage of adept forensic auditors skilled in advanced technological tools, hinders the industry’s development,” he added.
Regulatory bodies such as the RBI, SEBI, and MCA commission forensic audits to uncover financial irregularities and fraud. Furthermore, the Companies Act of 2013 and IBC mandate forensic audits to unveil fraudulent transactions during insolvency procedures.
As India’s business environment evolves, instances of financial fraud are on the rise. In response, regulators like the RBI, SEBI, and MCA have intensified scrutiny to prevent such occurrences. This increased oversight has consequently led to a greater reliance on forensic accountants, who must navigate intricate regulatory frameworks while utilizing advanced forensic technologies such as AI and ML to identify discrepancies and ensure compliance,” stated K.V. Karthik, partner and leader (forensic & financial crime, strategy, risk & transactions) at Deloitte India.
Notable incidents, including the Satyam Computer Services scandal, the Punjab National Bank fraud, the IL&FS financial crisis, and the YES Bank case, highlight the vital role that forensic auditing plays in detecting and addressing financial misconduct in India.