Fraud and Abuse Audit

Fraud Audit

Fraud auditing, unlike independent auditing, does not provide an opinion on the conformity of financial statements with generally accepted accounting principles and policies. Instead, it is an audit conducted with a bias towards identifying fraudulent transactions, assuming the possibility of fraud.

Potential transactional and accounting irregularities in companies can lead to severe consequences, not only resulting in criminal penalties but also causing harm to various stakeholders, including company shareholders, the government, creditors, and other parties involved in business relationships. Additionally, if financial statements are not prepared in compliance with legally established accounting procedures, leading to a misrepresentation of the company’s actual financial status, it can cause significant losses.

It is crucial that the audit to determine whether there are any reductions in the company’s assets due to irregularities is conducted by independent, impartial individuals who have the knowledge and experience in this field.

Types of Fraud

Fraudulent financial reporting occurs when management manipulates the company's profits to deceive financial statement users, thereby affecting their perceptions of the company's performance and profitability. This manipulation of profits can begin with small transactions or by altering assumptions and judgments made by management. Pressures and incentives can lead to increased fraudulent financial reporting activities. This situation may arise when management significantly misrepresents financial statements in order to meet market expectations or maximize performance-based compensation.
Misuse of assets involves the act of stealing a company's assets and is often carried out by employees in relatively small and insignificant amounts. However, misuse can also be conducted by company management, and these transactions may be much more difficult to detect due to the ability to conceal them effectively.

In asset misappropriation, false or misleading records may be made to cover up the loss of assets or the unauthorized pledge of assets, along with the creation of fraudulent documents to hide the truth.

What is Done in Fraud Auditing

In fraud auditing, efforts are made to prevent fraud, investigate it, and identify potential damage to the business. The goal of the prevention service is to identify the company's vulnerable areas to fraud and prevent possible misconduct and fraudulent activities. Prevention activities include preparing company ethical principles, creating fraud prevention policies, providing fraud awareness education, and offering related services. Prevention activities are the most important, effective, and economical method to combat fraud.