Forensic Accounting explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Forensic Accounting and Investigation Standards (FAIS) are the ICAI's rule book for members who gather evidence on suspected fraud, violations or disputes so that findings can be put before a competent authority. They set out how the engagement is defined, conducted and reported, and they say plainly that this work is not an audit.
This article is from the ICAI Compendium of Forensic Accounting and Investigation Standards (as on September 2025); mandatory for engagements conducted on or after 1 July 2023. ICAI may revise the standards, so check the current text on icai.org before relying on it.
The FAIS are a minimum set of requirements for every ICAI member who takes up a forensic accounting and investigation (FAI) assignment. An engagement can be forensic accounting, investigation, litigation support, or a combination, but never an audit. The Professional must read the mandate against the law, respect the rights of everyone concerned and, where a standard cannot be met, say so in the report.
What the compendium contains
The compendium has a Preface, a Framework, the Basic Principles and 20 numbered standards in six series. Under paragraph 5.1 of the Preface the Council made the FAIS mandatory from the effective date given in each standard. Paragraph 5.2 makes it the Professional's duty to comply with the standards read with the Preface, the Framework and the Basic Principles. Paragraph 5.3 deals with the case where compliance is not possible after reasonable efforts, or where a statute conflicts with a standard: the report must draw attention to the material departures and explain them.
| Series | Standards (number and title) |
|---|---|
| 100, key concepts | 110 Nature of Engagement; 120 Fraud Risk; 130 Laws and Regulations; 140 Applying Hypotheses |
| 200, engagement management | 210 Engagement Objectives; 220 Engagement Acceptance and Appointment; 230 Using the Work of an Expert; 240 Engaging with Agencies; 250 Communication with Stakeholders |
| 300, executing assignments | 310 Planning the Assignment; 320 Evidence and Documentation; 330 Conducting Work Procedures; 340 Conducting Interviews; 350 Review and Supervision; 360 Testifying Before a Competent Authority |
| 400, specialised areas | 410 Applying Data Analysis; 420 Evidence Gathering in Digital Domain; 430 Loans or Borrowings |
| 500, reporting | 510 Reporting Results |
| 600, quality control | 610 Quality Control |
If you are a business owner thinking of commissioning such work, our financial and legal due diligence service shows how fact-finding of this kind is scoped for a company.
The framework: where the standards apply
Paragraph 1.2 of the Framework says the test of applicability is the purpose for which the service is given to the service user. The standards matter most where the output may be used for litigation or prosecution. The same paragraph carves out one situation: the standards do not apply when a professional carries out forensic work-steps as part of an assurance assignment such as a statutory or internal audit or another attest engagement. So a statutory auditor chasing a fraud risk under SA 240 follows the auditing standards, not the FAIS; our SA 240 guide covers that side.
The Framework defines the Professional as a qualified accountant who is a member of a professional body such as the ICAI and who uses accounting, auditing and investigative skills. It also says the engagement aims to reach a conclusion but not to express an opinion (paragraph 3.3.1). An ICAI member remains bound by the Chartered Accountants Act, 1949, the ICAI Code of Ethics and other ICAI pronouncements (paragraph 5.2).
The ten basic principles
The Framework (paragraph 6.1) lists ten principles. The first five build the Professional's credibility: independence, integrity and objectivity, due professional care, confidentiality, and skills and competence. The other five shape the work itself: contextualisation of the situation, primacy of truth, respecting rights and obligations, separating facts from opinions, and quality and continuous improvement. Reading them together, the Professional must not let the client or a suspect steer the findings, must hold to what the evidence shows, must give the other side a fair hearing and must keep reported facts apart from views about them.
FAIS 110: the three kinds of engagement
FAIS 110 deals with understanding the nature of the engagement before appointment, so that scope and approach can be decided. Paragraph 1.2 says an engagement may include any or all of three elements.
| Element | What it is | When it applies (paragraph) |
|---|---|---|
| Forensic accounting | Ascertaining facts and gathering evidence on financial transactions and operational arrangements, to report violations, deviations and breaches before a competent authority | Mandate needs accounting skills to gather and present evidence (3.2) |
| Investigation | Critical examination of facts, records and documents for a specific purpose, such as an alleged legal, ethical or contractual violation | Mandate needs evidence to help establish possible fraudulent intent or identify possible suspects (3.3) |
| Litigation support | Mediation, alternative dispute resolution or testimony | Mandate needs review of evidence to help stakeholders in a dispute (3.4) |
Paragraph 3.5 requires that every stakeholder is clear which of these the engagement is, or which combination, "but not an audit".
Why the word "audit" is out
Paragraph 3.1 says the mandate shall not be in the nature of an audit, where the Standards on Auditing apply, and adds that no part of the engagement or its report shall refer to an audit "such as 'Forensic Audit'" (FAIS 110, paragraph 3.1). The explanatory comment in paragraph 4.1 explains the line: a statutory audit gives an opinion on the truth and fairness of financial statements, an internal audit strengthens controls, and audit work may produce red flags that become the starting point of an FAI engagement. Where a law or a lender uses the words "forensic audit", the engagement letter should still describe the work as forensic accounting and investigation. Our note on forensic accounting and investigation versus a forensic audit covers the difference in more detail.
FAIS 130: laws and regulations
FAIS 130 asks the Professional to understand how laws apply to the engagement. Paragraph 1.2 separates engagements where a specific law or authority gives both the mandate and the process from those where the client appoints the Professional by contract. Key requirements:
- A mandate agreed by contract must be consistent with the relevant laws (paragraph 3.2).
- The Professional considers the laws that govern how the work is done and how evidence or testimony must be presented (paragraph 3.3).
- A process-driven approach, such as a customised checklist, helps spot significant non-compliance with laws bearing on the subject matter (paragraph 3.4).
- The principle of natural justice, a fair hearing for the other party, is given due importance (paragraph 3.6).
- The report gives references to the laws considered (paragraph 5.2).
Paragraph 4.2 notes that laws on the information technology environment, privacy, insolvency and the admissibility of evidence shape how procedures are carried out. Admissibility is governed by the law of evidence, which this article does not explain; take legal advice where evidence will go before a court or tribunal. FAIS 130 itself allows expert legal advice on complex matters under FAIS 230 (paragraph 3.5).
Illustrative example
Illustrative: Kalpana Fabrics Pvt Ltd's internal auditor notes that one purchase manager's vendors are paid ahead of due dates in round amounts. The board asks a chartered accountant to establish what happened. The first job under FAIS 110 is to fix the nature of the engagement: here it is an investigation, possibly followed by forensic accounting if the company files a complaint. The engagement letter avoids the word "audit", records that the purpose is to gather evidence on the suspected favour to vendors, and keeps the manager's right to be heard. A checklist under FAIS 130 notes which laws bear on collecting emails and bank records. The report states facts and findings, not an opinion on guilt.
Common lapses
- Calling the work a "forensic audit" in the engagement letter or report.
- Mixing forensic steps into an audit and then claiming the FAIS were followed.
- Starting work before the mandate and the law behind it are clear.
- Reporting suspicion as if it were fact, or omitting the other party's explanation.
Need help with a forensic accounting or investigation assignment?
If a suspected diversion of funds or a vendor dispute needs a fact-based review, our team can discuss scope and mandate with you under financial and legal due diligence before any work starts.
Key takeaways
- The FAIS are mandatory for ICAI members on engagements conducted on or after 1 July 2023.
- An FAI engagement is forensic accounting, investigation, litigation support or a mix, never an audit (FAIS 110, paragraph 3.5).
- The FAIS do not apply to forensic work-steps carried out inside a statutory or internal audit (Framework, paragraph 1.2).
- Ten basic principles apply to every engagement, including primacy of truth and separating facts from opinions.
- Laws on evidence, privacy and the IT environment shape how work is done; the report refers to the laws considered.
Read next
- FAIS 210 to 310: engagement objectives, acceptance, experts, agencies and planning
- FAIS 320 to 360 and 510: evidence, work procedures, interviews, testifying and the report
- Fraud risk, red flags and detection techniques
- Forensic accounting and investigation, not a forensic audit
Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.