A bank suspects that the stock statements furnished for the 12 months during the FY 2018-19 by Ravana Handlooms, one of its borrowers, do not reflect the true position and that they have been systematically furnishing st

Gathering of Audit Evidence In forensic auditing specific procedures are carried out in order to produce evidence. Audit techniques and procedures are used to identify and to gather evidence to prove, for example, how long have fraudulent activities existed and carried out in the organization, and how it was conducted and concealed by the perpetrators. In order to continue, it is pertinent that the planning stage has been thoroughly understood by the investigating team, who are skilled in collecting the necessary evidence. The investigators can use the following techniques to gather evidence: Testing controls to gather evidence which identifies the weaknesses, which allowed the fraud to be perpetrated. Using analytical procedures to compare trends over time or to provide comparatives between different segments of the business. Applying computer-assisted audit techniques, for example, to identify the timing and location of relevant details being altered in the computer system. Discussions and interviews with employees. Substantive technique such as reconciliations, cash counts and review of documentation. Documents / Papers etc., to be seen by Forensic Auditor The Forensic Auditor should verify the following statements/papers/documents: Analyse the stock held on various dates during the FY 2018-19 and FY 2017-18. The stock statements submitted to the bank themselves may be seen in this regard. Trend analysis of the two years may be carried out from above. The borrower has filed the Income tax return for the AY 2019-20. Since its turnover exceeds ₹2 crores, it will be subject to tax audit. Form 3CD should be verified to see the comments of the auditor about valuation of stock. In case, there is any adverse comment or qualification, this will be helpful for further probe. Form 3CD also furnishes quantitative details of stock, which are to be verified by the forensic auditor. Forensic auditor should check whether the quantity as well as value as furnished to the banker tally with those disclosed in the Income-tax return. In case the difference is material, the same justifies strong further action. GST returns filed for each month may be verified. Thus will give an idea of the selling prices of the borrower for various items. By deducting rough Gross Profit margin, the cost of goods sold can be ascertained. The Forensic Auditor can compare the said rates with the rates adopted by the borrower in the Stock statements of various months. Forensic Auditor could conduct a surprise visit of the godown where the stocks are held and undertake a stock verification.