Forensic audit may see a 20 per cent rise due to increasing rate of non-performing assets.
"Forensic audit may see a 20 per cent rise following the recommendations made by Parliament Panel chaired by Veerappa Moily for mandatory forensic audit for all the bad loans and wilful defaulter," said Dhiraj Lalpuria, Partner, S K Patodia & Associates - an audit and consulting firm.
Forensic audit is an examination and evaluation of a firm's or individual's financial information for use as evidence in court.
"The average forensic audits conducted annually in India is minimal at around 400-500 as compared to the developed countries, primarily Europe and the US, where such forensic audits have been prevalent since years and used as an effective tool for vigilance," Lalpuria said in a statement here.
However, in the last two years there has been a surge in cases being referred to forensic accounting and this trend is likely to rise going by increasing rate of non-performing assets, Lalpuria said.
This will bring demand of expert professionals qualified and equipped to conduct such forensic audits. This will increase the cost of audits as well which would depend on the grey areas selected for the audit of a business unit.
According to the parliamentary panel, the forensic audit will aid in bring out the possible cause in rising non-performing assets. As on September 2015, the total NPAs stood at Rs 2,05,024 crore of which 21 per cent were wilful defaulters.
Forensic audit could unravel frauds by business undertakings, committed due to pressure, opportunity or rationalisation.
With forensic audit leading to disclosure of the names of such borrowers, Lalpuria believes that the business units might then not resort to wilful defaults for fear of loss of goodwill, trust of the customers and stakeholders.
Though disclosing the details of borrowers is restricted by the RBI norms, the Panel has strongly recommended making public the name of such borrowers as a measure of curbing NPAs.
However, effective impact of forensic audit on wilful defaulters will involve a gestation period of at least 8-10 years. This delay will also be a fall-out of non-responsiveness of the corporate and banking world on the panel's recommendations as also the formation of consensus in the panel itself, Lalpuria said.
