When it comes to financial scrutiny and corporate accountability, two professions often come into focus: auditing and forensic accounting. While they both deal with financial statements and internal controls, their purposes, methodologies, and end results differ significantly.

In his session, Forensic Accounting - Witness Skills, Dermot Madden explained that understanding these differences is crucial for organisations, professionals, and stakeholders seeking clarity on financial integrity and fraud detection.

The Role of Auditing

Auditing is a structured process where financial statements are examined to determine whether they present a true and fair view of an organisation's financial position. Auditors are tasked with expressing an opinion, not with detecting fraud. Their approach is typically compliance-based, ensuring that accounting standards and regulatory frameworks have been adhered to.

However, as highlighted in the source material, auditors are given access only to the books of account provided by management—not necessarily the real books if fraud is involved. Most external auditors do not detect fraud, particularly because such frauds often stem from management override and a culture of deception originating at the top of the organisation.

Moreover, a psychological factor—confirmatory bias—can affect auditors, making them unconsciously avoid identifying irregularities that could lead to complex or uncomfortable findings.

The Role of Forensic Accounting

In contrast, forensic accounting is investigative by nature. Forensic accountants are typically called upon when there is suspicion of fraud, disputes over insurance claims, divorce settlements, or asset tracing. Unlike auditors who start with structured documentation, forensic accountants often begin with a blank page, piecing together a narrative from fragmented information.

One illustrative example involves a hotel fire where the forensic accountant was asked to assist with an insurance dispute. Rather than jumping straight into compiling reports, the professional first examined the insurance policy itself, discovering the hotel was underinsured—rendering a full investigation potentially futile. This practical, problem-solving approach is a hallmark of forensic accounting.

Key Differences

Human Behaviour and Organisational Culture

A crucial insight from the document lies in the intersection of behavioural science and financial misconduct. It posits that fraud often originates from leaders with intimidatory or narcissistic personalities, making them impervious to advice or correction. These individuals can manipulate both internal controls and external professionals, perpetuating a culture of silence and complicity.

Behavioural studies also show that those with inflated self-confidence—often due to a lack of awareness of their limitations—tend to perform better in interviews and rise quickly in organisations. Unfortunately, such personalities can be bad actors when placed in positions of power, increasing the risk of large-scale fraud.

While both auditing and forensic accounting serve vital roles in the financial ecosystem, they differ fundamentally in purpose, execution, and outcome. Auditors offer assurance within a compliance framework, whereas forensic accountants dig deeper into financial behaviour and anomalies. In an age where corporate transparency is increasingly under scrutiny, the integration of behavioural insight and investigative expertise is essential in protecting the interests of shareholders, regulators, and the public.

For the full session, please click here. Dermot Madden covers the following topics during this course:

• What exactly is forensic accounting?
• Accepting Instructions
• Evidence – Types
• Report & Letter writing techniques
• Communications with lawyers
• Duties of the expert witness to the court
• Expert Witness testimony
• Bias
• Handling pressure in “the witness box”
• How to handle questions
• Fees

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.