Forensic audit is one of the audit methods used to uncover fraud or fraud in an organisation or company.
Regulatory changes in 2025 to 2026 that affect this topic are summarized in the article audit and oversight regulation update 2026.
This technique plays an important role in the world of business and finance, as it is able to identify various forms of crime that often occur.
Integrity and transparency are very important aspects of running a business.
However, it is not uncommon for companies to face challenges in the form of fraud or irregularities that can threaten their stability and reputation.
Fraud cases involving large sums of money often make headlines, highlighting the importance of having robust mechanisms in place to detect and prevent these illegal activities.
This is where forensic auditing takes on its role as a critical tool.
This article will provide a deeper understanding of forensic auditing, its goals and functions, the procedure for its implementation, as well as examples of its application. Check out the full explanation!
What is forensic Audit?
Forensic auditing is an accounting investigation process specifically designed to detect fraud, misuse of funds, or other deviations that could harm an organization.
This Audit is different from conventional audits because it focuses more on the investigative aspect.
Not only does it examine financial records, but forensic audits also gather evidence to support their findings, which can be used in court if needed.
This process aims to uncover complex fraud schemes that may have been carefully carried out.
Usually, this audit is conducted by auditors who have specialized expertise in the fields of investigation and accounting.
This audit involves a thorough investigation process, complex data analysis, and the compilation of valid evidence that can be used in legal proceedings.
Audit procedure forensics is a stage that involves in-depth analysis of financial data and business transactions.
The main goal is to find evidence that can reveal the existence of fraud or abuse.
Not only limited to the financial sector, forensic auditing is also often used in various other areas to ensure transparency and honesty.
With the increasing complexity of today's business, forensic auditing has become very relevant and necessary.
What Are the Purpose and Functions of a Forensic Audit?
Forensic audits have several main objectives, all of which are related to the detection and prevention of fraud.
1. Fraud Identification Report
The primary goal is to identify and expose the fraud occurring within an organization.
This fraud can take the form of financial statement manipulation, asset misuse, or unauthorized transactions.
2. Valid evidence collection tools
In addition, forensic examination is an important tool for collecting evidence that can be used in legal proceedings.
These evidences must be valid and admissible in court, so a meticulous and systematic approach is required.
3. Repair Recommendations
Another function of this type of audit is to provide recommendations for improvements to the internal control system in the company.
Thus, it is expected that similar fraud can be prevented in the future.
4. Corporate Risk Assessment
One of the functions of forensic auditing is to provide a risk assessment within an organization. Through this audit, auditors can evaluate areas that are vulnerable to fraud and recommend measures to strengthen internal controls.
For example, auditors may suggest that companies enhance their data security protocols, implement regular internal audits, or conduct anti-fraud training for employees.
5. Recovery Of Misappropriation Of Company Funds
The advantages as well as the function of this type of audit is as a means of recovering funds that have been misused.
In many cases, these audits help organizations to identify the source of financial leaks and take legal steps to recover lost assets.
This process not only recovers lost funds but also serves as a deterrent for those involved in fraudulent activities.
What Are the Stages of a Forensic Audit?
This audit procedure involves several important stages that must be passed to ensure the accuracy of the investigation results, namely:
1. Planning
The first stage is planning, where the auditor determines the objectives of the investigation and identifies the areas that need to be examined.
At this stage, the auditor will gather preliminary information and establish the methodology to be used.
2. Collection Of Evidence
The second stage is evidence collection. The auditor will gather documents, electronic data, and other information relevant to the case.
The collection of evidence must be carried out in a lawful manner and in accordance with forensic audit procedures to ensure that the evidence is admissible in court.
3. Evidence Analysis
The third stage is the analysis of evidence. In this stage, forensic auditors will analyze the data that has been collected to look for patterns or anomalies that can indicate fraud.
This analysis requires specialized expertise in understanding financial data and the possible ways of manipulation that may be employed.
4. Reporting Results
The fourth stage is the reporting of results. After the evidence is analyzed, the auditor will prepare report which explains their findings.
This report must be clear, accurate, and understandable to the parties involved, including the court.
The report should also include recommendations for future improvements and preventive measures.
Examples of Forensic Audit
Forensic audits are required when there is a suspicion of fraudulent practices or crimes in the operational processes of a business.
If the following situations are highly likely to occur, this audit should be carried out immediately:
1. Conflict of Interest
The first example of a forensic audit is a condition in which a person has two or more conflicting interests.
For example, although there are other companies that offer more competitive prices and better quality, an employee prefers to cooperate with a company owned by a close friend,
2. Manipulation Of Financial Statements
The second example of forensic auditing that is often encountered is cases of fraud in financial reporting.
Manipulation of financial statements is the process of presenting financial statements deliberately not in accordance with reality aimed at changing the perception of stakeholders about the company's financial performance.
For example, a company might manipulate its financial statements to display greater profits, create a positive impression, and attract additional sources of funding.
An Audit in this case would involve a detailed examination of financial records, interviews with financial staff, and analysis of transaction patterns to find evidence of manipulation.
3. Misuse Of Company Assets
The next example is the misuse of funds in non-profit organizations. Misappropriation of assets is a condition in which fraudulent actions occur within a company.
Examples such as theft of company assets, payment of salaries or fictitious procurement, making false receipts, to embezzlement of funds.
Forensic auditors may audit the organization's expenses to ensure that funds are being used in accordance with established objectives.
If any misconduct is found, the evidence collected can be used to support legal action against the perpetrators.
4. Corruption
Corruption can occur in two main ways. First, bribery, which is when someone gives something, such as money or a gift, to illegally obtain a profit.
Secondly, blackmail, that is, an act of intimidation of the victim in order to force her to fulfill the desire of the offender.
What Is the Difference Between Forensic Audit and Other Types of Audits?
- Forensic Audit vs Internal Audit: Forensic auditing is oriented towards the identification of fraud in business, requiring a deep understanding of the relevant laws and investigative evidence. In contrast, internal auditing focuses on identifying discrepancies in a company's financial records or policies, with an emphasis on implementing accounting standards and improving internal governance.
- Forensic Audit vs investigative Audit: Forensic auditing aims to uncover evidence of potentially substantial fraud or misconduct, often utilizing specialized forensic expertise to support due process. On the other hand, investigative audit carried out after the problem occurs, it aims to understand the root cause in depth in order to provide improvement recommendations, without always requiring forensic expertise.
- Forensic Audit vs Compliance Audit: Forensic auditing is focused on collecting evidence of violations of the law with an investigative approach that often involves legal experts. In the meantime, a compliance audit aims to evaluate the company's compliance with certain policies, regulations, and standards through the analysis of documentation, processes, and procedures.
Who Has the Authority to Conduct Forensic Audits and Calculate State Financial Loss in Indonesia?
The answer depends on whose money is being examined. In a private company, a forensic audit is carried out on the assignment of management or the owners. For state or regional finances, the authority is set by regulation and divided among several institutions. Summary as of October 2026:
| Institution | Relevant authority | Legal basis |
|---|---|---|
| BPK | Investigative examinations to uncover indications of state financial loss or criminal elements. Assesses and/or determines the amount of state financial loss. May serve as an expert witness in court. | 1945 Constitution Article 23E paragraph (1); Law 15/2004 Article 13; Law 15/2006 Article 10 paragraph (1) and Article 11 letter c |
| BPKP | Investigative audits of irregularities indicating harm to state finances, audits to calculate state financial loss, and expert testimony. | Presidential Regulation 192/2014 Article 3 letter e (unchanged by Presidential Regulations 20/2023 and 2/2025) |
| Inspectorate (APIP) | Audits the activities of ministries or regional work units funded by the state budget (APBN) or regional budget (APBD). | Government Regulation 60/2008 Articles 48 and 49 |
| Public accountant (public accounting firm, KAP) | May examine state finances pursuant to law, with the report required to be submitted to BPK. May also work for and on behalf of BPK. | Law 15/2006 Article 6 paragraph (4) and Article 9 paragraph (1) letter g |
State financial loss under the law is a shortfall of money, securities, and goods that is real and certain in amount as a result of unlawful acts (Law 15/2006 Article 1 point 15). Constitutional Court Decision 25/PUU-XIV/2016, delivered on 25 January 2017, removed the word “may” from Article 2 paragraph (1) and Article 3 of the Anti-Corruption Law, so the loss must be real, not estimated. Both articles have now been replaced by Articles 603 and 604 of the new Criminal Code (KUHP).
The position of institutions other than BPK continues to shift. Supreme Court Circular (SEMA) 4/2016 stated that BPKP and Inspectorates may conduct audits but are not authorized to declare state financial loss. SEMA 2/2024 (17 December 2024) changed this: BPK still makes the declaration, while the audit results of BPKP, Inspectorates, and certified public accountants can serve as a basis for determining the loss, and judges may assess it from the facts at trial. Then Constitutional Court Decision 28/PUU-XXIV/2026 (delivered on 2 March 2026) rejected the review of Articles 603 and 604 of the new KUHP and affirmed that the “state financial audit institution” in the elucidation of Article 603 is BPK. Judicial review of the same phrase is still developing, so check the latest status.
A brief flow for state financial cases:
- Indications of irregularities emerge from an examination or a report.
- An investigative examination uncovers indications of state financial loss and/or criminal elements.
- The loss is calculated and declared by the authorized institution.
- If there are criminal elements, BPK reports to the competent agency within 1 month of becoming aware, and that report becomes the basis for investigation (Law 15/2006 Article 8 paragraphs 3 and 4).
- Investigators, public prosecutors, and judges process the case. Auditors may serve as expert witnesses.
Who has the authority to declare state financial loss?
The Audit Board of Indonesia (BPK), based on the 1945 Constitution Article 23E paragraph (1) and Law 15/2006 Article 10 paragraph (1). BPKP, Inspectorates, and public accountants may still conduct audits, and under Supreme Court Circular (SEMA) 2/2024 their results can serve as a basis for determining the loss.
FAQ About Forensic Audit
What is a forensic audit?
A forensic audit is an accounting investigation process designed to detect fraud, misuse of funds, or other irregularities that harm an organisation. Unlike a conventional audit, it focuses on the investigative side and gathers evidence that can be used in court.
What are the purpose and functions of a forensic audit?
Five functions: identifying fraud such as financial statement manipulation and asset misappropriation, gathering lawful evidence admissible in court, providing recommendations for improving internal control systems, assessing the risk of areas vulnerable to fraud, and helping recover company funds that have been misused.
What are the stages of a forensic audit?
Four stages: planning, to set the objectives and methodology of the investigation; gathering evidence such as documents and electronic data, lawfully; analysing the evidence to find patterns or anomalies; and reporting the results clearly and accurately, together with recommendations for prevention.
When is a forensic audit needed?
When there is suspicion of fraudulent practice in business operations — for example conflict of interest, financial statement manipulation, asset misappropriation such as fictitious procurement or embezzlement of funds, and corruption in the form of bribery or extortion.
What is the difference between a forensic audit and an internal audit?
A forensic audit is oriented towards identifying fraud and demands a deep understanding of the law and of investigative evidence. An internal audit focuses on discrepancies in financial records or company policy, with an emphasis on applying accounting standards and improving internal governance.
How does a forensic audit differ from an investigative audit and a compliance audit?
An investigative audit is carried out after a problem has occurred, to understand the root cause and give recommendations for improvement, without always requiring forensic expertise. A compliance audit evaluates a company's conformity with policies, regulations, and standards through analysis of documentation and procedures. A forensic audit itself focuses on gathering evidence of legal violations through an investigative approach.
Conclusion
Thus, this article provides a complete explanation regarding forensic audits, from its definition to examples. Forensic auditing is an important tool in detecting and preventing fraud within organizations.
By using in-depth investigative techniques, this audit can uncover discrepancies that may not be detected through regular audits.
The process involves several important stages, from planning to reporting results, to ensure that the evidence collected is valid and admissible in court.
In an increasingly complex business world vulnerable to fraud, forensic auditing is an effective solution to protect the assets and integrity of organizations.
Through the examples that have been discussed, we can see how important the role of forensic auditing is in maintaining fairness and transparency.
Thus, forensic auditing is not just a detection tool, but also an effective preventive measure in combating fraud.
How Does Audithink Help Internal Audit Teams?
Audithink is internal audit management software with six main features: risk assessment, audit planning, work program templates, notifications, follow-up monitoring, and automated reports. Audithink does not perform forensic audits; its features help internal audit teams manage plans, schedules, and follow-up of findings.
Visit the Website Audithink for scheduling demos and more information.
