Financial Audit vs. Forensic Audit - Meaning, Differences, and More 


Auditing is an inseparable part of a business, and every business is required to conduct an audit to evaluate the company’s financial health. But, many types of audits can be done depending on each type of audit purpose. 

For example, an Information Technology (IT) Audit will evaluate whether a company’s IT infrastructure is proper and is according to the set policies and standards. Similarly, financial and forensic audits are often confused, and you must understand the difference between the two.

This blog will explain financial and forensic audits, why you need a financial audit or forensic audit, and key differences between the two. 

What is Financial Audit?

Also known as the Financial Statements Audit, the financial audit has an overall objective to evaluate the material segments of the balance sheet, statement of profit & loss, and cash flow statements. It helps the company determine the current financial position and assists the board of directors to improve them. 

The outcome of the financial audit in the form of the audit report is usually made available to the stakeholders of the company, which assists them in understanding the company’s financial position and helps in making investment decisions.

The company's material aspects or non-recurring activities are being disclosed annually to shareholders that uncover the indicative signs of errors, misrepresentations, mistakes, or frauds if found during an audit.  

When Should You Conduct a Financial Audit? 

Financial audits are mandatory for all companies, including Small and Medium Enterprises (SMEs) under the new Commercial Companies Law. But, most SMEs get the audit done only in the following circumstances:

  • Branch of a foreign company
  • Liquidation of the company
  • Free zone company 

However, you can get the financial audits done voluntarily when management is willing to analyze the current financial position, compare current from the old audited balance sheet to recognize its growth trend, give stakeholders a clear picture of the company, and determine the ratio of profits to be distributed as dividends and retained for further investments. 

What is a Forensic Audit? 

The facet of forensic audit is similar to a financial audit, except the depth of investigation required in forensic is more than the financial audit. A forensic audit is not mandatory to be conducted every year; the law obligates it to the company when any illegal or fraudulent activities are found. 

Interest protection of the investors is one of the main objectives behind forensic audits. Investigator will present the audit findings, with accuracy, in front of the court regarding a specific operation or department of the company. 

When Should You Conduct a Forensic Audit? 

Your company needs a forensic auditor to conduct a forensic audit for them only in specific circumstances such as:

  • You need strong evidence to support the findings in the court of law
  • You have suspected theft or fraud in your organization

But, how do forensic and financial audits differ? Let’s understand the differences between them.

Financial Audit and Forensic Audit - Key Differences

  • Every business should perform a financial audit irrespective of the company's size, nature, or capital. It is a voluntary audit up to a specific limit, and a forensic audit is to be performed only when mandated by the court of law. 
  • A financial audit is for routine assessments of the company. In contrast, a forensic audit is for an in-depth examination of activities in a specific department(s) or operation(s) to find evidence of illegal or fraudulent activity. 
  • Financial audits require general knowledge of auditing, while forensic auditing requires specific expertise with long-term experience in the relevant subject matter. 

Every firm and company must understand the purpose of the audit and then decide which type of audit will serve your purpose the most. The above-mentioned vital differences will give you a general idea of when you need a financial audit and when you will need a forensic audit. 

How Can We Help?

We at Flyingcolourtax can help you conduct forensic and financial audits as one of the audit assistants in the UAE. Our qualified professionals can also assist you in accounting, taxation, financial modeling, company registration, and PRO requirements. 

Register your free consultation with us to know more about the comprehensive services. 

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