Accounting
No, there’s no such thing as a forensic audit
The term “forensic audit” has become commonplace with allegations of financial impropriety. That’s too bad, because there’s actually no such thing as a forensic audit.
How is that possible, when it’s used in everything from proposals to firm advertising? The culprit is a snowball of misunderstanding, allowed to fester by clients who don’t know any better, and practitioners who probably should.
In fact, the term forensic audit is an oxymoron, and its use is not only wrong, it’s dangerous, at least as far as our world is concerned; it sets false expectations, the bedrock of unhappy clients and future litigation.
There are a few reasons why.
First, consider the word audit, a term
Forensic work, however, is
It’s also impractical, because audits rely on a concept of materiality. Not every dollar has to be checked, because not every dollar is important to the user of the financial statements. For instance, a cashier stealing change at a multibillion-dollar business, while concerning, is likely immaterial.
But fraud has no materiality. A cashier stealing change is fraud, whether it’s $0.10 or $10,000. Identifying every aspect of fraud ranges from impractical to impossible, which is why it’s standard for engagement agreements to disclaim that acts of fraud may not be caught.
Hearing the phrase “forensic audit,” a client might assume assurance that everything will be caught. That’s antithetical to forensic work. We offer no assurance that we’ll catch everything, or even anything.
Forensic audit is also paradoxical in reporting. In audits, a CPA expresses an opinion. But practitioners performing forensic services are prohibited from providing formal opinions; we deal in fact only.
That’s why the term forensic audit doesn’t appear in regulatory guidance: it doesn’t exist.
That said, it’s easy to see why it’s used. The public knows audits as a validation exercise. A forensic audit? Performed by forensic accountants, that cool role Ben Affleck nailed in that movie? It just sounds more rigorous. Who wouldn’t do that?
But its use confuses the public, and paves the way for post-engagement disputes — and even lawsuits — if a so-called forensic audit fails to catch all fraud. So ultimately, just like a doctor correcting patients who misname procedures, it’s up to practitioners to correct misinformed clients.
If a federal, state or local agency issues a request for proposal for a forensic audit, the forensic accountants who respond, many of whom also provide assurance work, should be proposing forensic services instead and explain the reason.
And the firms and educational institutions that actually promote forensic auditing — yes, there are a few — should adjust that language. How can we expect the public to understand misnomers, if we as practitioners are guilty of propagating it ourselves?
Some might say that worrying about nomenclature is unnecessary. That focusing on the finer details misses the bigger picture.
Those people miss the point of forensic services altogether. If we can’t manage the small details, who will rely on us for the bigger ones?
Let’s get this fixed.
President Donald Trump threatened Harvard University’s tax-exempt status after the school said it won’t accept his administration’s demands in exchange for continued federal funding.
“Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” Trump posted on Truth Social. “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!”
The government’s antisemitism task force said late Monday that it would freeze at least $2.2 billion of multiyear grants after Harvard rejected a set of demands from the administration. Earlier in the day, Harvard’s president Alan Garber had argued that the terms crossed red lines regarding academic freedom and interference in higher education.
“It makes clear that the intention is not to work with us to address antisemitism in a cooperative and constructive manner,” Garber wrote on Harvard’s website. “Although some of the demands outlined by the government are aimed at combating antisemitism, the majority represent direct governmental regulation of the ‘intellectual conditions’ at Harvard.”
Harvard, the oldest and richest U.S. college with a $53 billion endowment, has long been a target of Republicans who have accused it of liberal bias and been critical of its hiring and admissions policies. But it has become a flashpoint for the White House after campuses were roiled by pro-Palestinian student protests after the Oct. 7, 2023, attack by Hamas on Israel and the Jewish state’s retaliatory response in Gaza.
Harvard had previously said it would work with the administration to fight antisemitism on campus, such as tightening disciplinary procedures, but Garber said the administration expanded its terms to include the ending of diversity, equity and inclusion programs, changes to its admissions and hiring and curbs on the “power” of certain students, faculty and administrators because of their ideological views.
Harvard’s tax-exempt status affords the school a variety of benefits, such as not having to pay traditional property taxes on educational buildings. It can sell bonds that pay interest that’s exempt from federal taxes, which lures investors and helps lower borrowing costs. A Bloomberg News analysis estimated that Harvard’s tax benefits totaled at least $465 million in 2023.
The Internal Revenue Service, which is supposed to enforce federal tax laws independent of partisan pressure, determines whether a nonprofit loses the status. Organizations can lose their status, though, if they’re involved in political campaign activity or are heavily involved in lobbying. Groups can also lose their designation if they have excessive income unrelated to their core mission or fail to file annual returns with the IRS.
Sarah Pabst/Photographer: Sarah Pabst/Bloomb
Treasury Secretary Scott Bessent said Republicans are looking at all options to help pay for President Donald Trump’s campaign promises on tax cuts, including increasing levies on the wealthiest Americans.
“We’re going to see where the president is” on the issue, Bessent said in an interview during a trip to Argentina Monday. “Everything’s on the table.”
Bessent said he and his counterparts in the administration and on Capitol Hill are working toward a “refinement portion” of legislation that would extend and potentially expand Trump’s 2017 tax cuts — many of which are set to expire at year-end.
“We’ve got broad agreement and we’re going to go from there,” Bessent said at the US ambassador’s residence in Buenos Aires.
Bloomberg reported earlier this month that Republicans were weighing the creation of a new bracket for those earning
Bessent has said that he is working to expand the 2017 cuts to include no taxes on tipped wages and overtime pay, and a new benefit for Social Security recipients. He also said he wants to give people the ability to deduct the interest payments on their auto loans.
The Treasury chief was visiting Argentina to show support for the country after it received a new round of IMF funding last week. He earlier announced that the US would start trade negotiations with the country, after meeting with President Javier Milei and Economic Minister Luis Caputo.
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