Forensic Audits: Got a Clue?

(continued)

Bishop was the sole panelist to defend the idea of periodic forensic audits of public companies as being potentially useful, arguing that just because nothing in particular is suspected, it doesn't mean that a forensic auditor wouldn't know how to begin. "It is possible to go looking in the most likely places for the largest potential issues," he said. While there is no guarantee that a forensic audit would uncover all forms of fraud, "the mere fact [that someone] looked in the most likely places…can give additional assurance that there are no skeletons in those most likely places."

The option of random audits "could create a high level of fraud deterrence at a total cost much lower" than that of mandatory periodic forensic audits, he added.

There's no official proposal on forensic audits before the PCAOB, and a January report based on the board's audit inspections contained a reassuring message: it was not "changing or proposing to change any existing standard, nor is the board providing any new interpretation of any existing standards." Bear in mind, though, the fallout that followed a similar report, in December 2005. The topic: internal controls and Section 404.