Guidance Note for Forensic Accounting and Investigation Standard No. 320 on Evidence and Documentation aims to assist professionals in complying with the requirements of the standard by providing elaboration and clarification on definitions and terms. The objectives of this guidance note are twofold. Firstly, it seeks to clarify the procedures that can be followed to gather relevant and reliable evidence effectively. Secondly, it explains how procedures for validating findings can be appropriately recorded as sufficient documentation. In addition, the guidance note includes examples and illustrations to support professionals in applying similar work procedures that are relevant to the specific circumstances of their engagement.
Digital Accounting Assurance Board
The Institute of Chartered Accountants of India
1st June, 2023
GUIDANCE NOTE FOR FORENSIC ACCOUNTING AND INVESTIGATION STANDARD NO. 320 ON EVIDENCE AND DOCUMENTATION
EXPOSURE DRAFT Approved by DAAB (On 1 June’23)
This Guidance Note provides technical clarifications and implementation guidance on how to prepare for and conduct work procedures on Forensic Accounting and Investigation Standard Number 320, on “Evidence and Documentation” issued by the Institute of Chartered Accountants of India (ICAI) and should be read in conjunction with all the Standards relevant to the topic. The contents of this Guidance Note are recommendatory in nature and do not represent the official position of the ICAI. The reader is advised to apply his best Professional judgement in the application of this Guidance Note considering the relevant context and prevailing circumstances.
1.1 Forensic Accounting or Investigation (FAI) assignments is a fact-finding exercise seeking relevant and reliable evidences. Conclusions and reporting are dependent on the basis of evidence gathered and documents considered. While gathering evidences and documentation, applicable laws and regulations are considered, as per Forensic Accounting and Investigation Standards (FAIS) 130 on “Laws and Regulations”.
1.2 There is a possibility that most FAI assignments may end up as a subject matter of legal proceedings. Therefore, the assignment needs to be carried out in a manner which can demonstrate that evidence is gathered in accordance with the provisions of the FAIS.
1.3 Due to the inherent litigative nature of the FAI assignment, the Professional is required to gather relevant and reliable evidences to support assignment objectives since these will be submitted during the legal proceedings. Although the admissibility of evidence is decided by the Competent Authority, the Professional is expected to follow procedures for its gathering, evaluation and submission.
1.4 The details of work procedure conducted for gathering of evidences, is recorded in the form of documentation. The documentation is expected to include the manner in which the evidences were evaluated to arrive at the conclusions.
1.5 Reliable evidences, when recorded in the form of appropriate and sufficient documentation, would allow others to arrive at similar conclusions as the Professional.
2.1 This Guidance Note (GN) seeks to provide help to the Professional in complying with the various requirements of the Standard by elaborating on the definitions and clarifying the terms.
2.2 The objectives of this GN are as follows:
(a) To clarify the procedures which may be followed while gathering relevant and reliable evidences.
(b) To explain the manner in which procedures for validating the findings can be recorded as appropriate and sufficient documentation.
2.3 The GN also provides examples and illustrations to help the Professional apply similar work procedures which may be relevant to the circumstances of the engagement.
3.1 Nature of Evidence: The Professional gathers many types of evidences, which can be classified in different ways for different purposes.
3.1.1 Type of Evidence: For evaluating the admissibility of evidence before competent authorities, the Professional may consider the following type of evidences:
(a) Primary Evidences are Original Documents and considered most authentic.
(b) Secondary Evidences are certified copies of Original Documents and admissible under certain circumstance.
Similarly, in order to discuss the form of an evidence, the Professional may consider the following type of evidences:
(c) Oral evidence is the information gathered during the Interview or an enquiry.
(d) Documentary evidence includes various records in the form of documents such as Invoices, Purchase Orders, Inventory Record, Asset title papers, various types of agreements etc.
(e) Electronic evidence includes records kept in electronic or digital mode such as email communication, mobile text message, a spreadsheet file, etc.
Sometimes, the manner of capturing the evidence becomes a way to distinguish it from other, and the Professional may consider the following type of evidences:
(f) Technical evidence may include records generated from various mechanical devices such as the time recorded on a stop watch, the electricity consumed recorded by a meter, or the reading of raw material processed through a production machinery, etc.
(g) Camera evidence present photographs (still pictures) and videos (moving pictures) thus generating an image of the subject matter at a point in time and creating evidence.
3.1.2 The type of evidence drives the manner in which such evidence is to be gathered. Therefore, the Professional modifies the relevant work procedures of evidence gathering based on the type of evidence as per the due process of law.
3.1.3 Primary Evidences generally remains in custody of Stakeholders. Professional can enclose copies of original documents with the reports. Professional may record the references of custody of original documents in the Chain of Custody. Professional can also keep the record of custody of original documents in the Stakeholders custody in the form of acknowledgment of such custody by Stakeholder.
3.1.4 The electronic records as evidence are gathered through extracting various types of data in the form of image by using different types of electronic tools.
3.1.5 The documentary evidences are gathered in the form of Invoices, Registers, and Records by obtaining the relevant copies from various Stakeholders.
3.2 While gathering various evidence, it is advisable to collect as much evidence as possible during the course of the assignment. The tests of relevance and reliability can be done later during the course of the work procedures. While the admissibility of the evidence will be tested by Competent Authority, the duty of the Professional is to ensure that due processes for gathering the evidence and maintaining documents is followed so that the evidence does not fail to serve its purpose on technical grounds.
3.3 If evidence is gathered from the usage of work of a third-party expert, the Professional is expected to take additional safeguards as provided for under FAIS 230 on “Using the work of an Expert”.
3.4 Documents, in addition to the evidence, also include the written record of the work procedures. As indicated in the Standard, the Professional is expected to take care to in recording the documents and work papers since these form the base when demonstration of conformance to work procedure is required.
3.5 The Professional to the extent practicable can independently verify and evaluates the Original Documents and obtain copies of it which may be enclosed with the reports as annexure and exhibits. Whereas obtaining a self-attested copy places highest degree of reliance on the evidence, it may not be always possible to get self-attested copies from the Stakeholders.
3.6 The Professional can gather the evidences from various sources. While obtaining these evidences, the Professional may consider that sharing of documents (which would be enclosed as evidences) are governed by agreements between different stakeholders. In such circumstances, the Professional may take support of Primary Stakeholder to obtain the required documents and verification of these with the respective source records.
3.7 In some cases, the prescribed procedure to gather evidence may take considerable time, exceeding the assignment timelines, the same can be communicated to the Primary Stakeholder. In such circumstances, if the Professional is relying on the copies of the documents provided by other Stakeholders, it shall be reported as so.
3.8 Any non-cooperation from Stakeholder (or such other limitation) in obtaining and verification of the evidence shall be communicated as Significant Matter to the Primary Stakeholder and shall also be mentioned in the report, in line with the provisions of the Standard.
For example, Data may be required for analysis from Cloud Service Provider. Stakeholder and Cloud Service Provider have entered into agreements about the services and the manner in which the data would be made available. These agreements may be taken into consideration and support from Stakeholder is expected in such cases for obtaining the data.
3.9 The Professional is expected to ensure that all the original documents or data gathered is kept in a sealed cover or preferably in a lock and key supplemented by a proper chain of custody. Digital evidences may be protected through a password. Professional is expected to perform the review or work procedures after obtaining copies of the original documents or data. This is equally important while carrying out the data analysis wherein Professional should take precautions and work on the copy of the data gathered.
3.10 It is a good practice to preserve the evidence and documents till the conclusion of the legal proceedings. The Professional can preserve the evidence and documents in accordance to the applicable law, at least till the conclusion of the legal proceedings. The Professional is expected to develop procedures such as Documentation Register with Case Number, Safe Custody Location of where documents are kept, the mode in which documents are preserved, whether in paper based or digital mode, access to the documentation is controlled etc.
4.0 Explanation with Examples
4.1 The evidence could be obtained or provided by Primary Stakeholder internally or by an external source such as other stakeholders. The internal sources of evidences include accounting records, inventory records, production records, audit trails of transactions etc. The external sources of evidences include documents and confirmation from Other Stakeholder, documents obtained from public authorities, digital footprints provided by the digital service providers etc.
4.2 The reliability of evidence depends upon the source and manner of gathering of such evidence. To establish the reliability of evidence, the Professional may follow planned procedures while gathering and accepting the documents. The primary evidence generally takes considerable time to gather, as a result of which the Professional starts the assignment with secondary and whatever evidence is available.
4.3 The reliability of the evidence also depends upon the type of evidences. For example, while treating books of accounts as evidence, the Professional may consider if the books of accounts are kept on regular basis by collecting the relevant digital trails of recorded transactions. In case where the transactions are modified frequently (which becomes apparent from the digital trail) then reliability may need to be further corroborated with other evidence, in absence of corroborative evidence the evidence may not be considered reliable.
4.4 Certain documentation record the evaluation outcome of various other documents which were gathered with the intention of supporting evidence. For example, data analysed to determine the relationship of transactions and their relevance to matter in dispute, including (where necessary) to further trace these with supporting transaction related documents, can make them as admissible evidence.
4.5 The documentation may also include those documents which were provided by Primary Stakeholder for evaluating and where the Professional is not under any obligation to gather additional documents as evidence.
4.6 Documents are generally evaluated from two perspectives in order to establish their appropriateness:
(a) Whether the documents are related to the objectives of assignment. For example, in case where dispute is related to utilization of borrowed funds, the documents related to asset trails are relevant evidence.
(b) Whether the documents may assist to arrive at a conclusion. For example, evidence in the form of entries in the books of accounts is relevant but not sufficient and additional evidences related transactions are also required to arrive at a conclusion.
(c) In situations where the Professional has received documents and information directly from the Agencies, the onus of the relevance and reliability of the evidence and the appropriateness and sufficiency of the documents is on the Agencies who has provided such documentation and information, and the same shall be mentioned in the report.
4.7 In an ideal situation the Professional is expected to have custody of all the evidence and documents, however depending on the Engagement, Professional may not have the direct custody of the evidence and should endeavour to have a mechanism whereby access to the evidence can be provided to the Professional as and when required including presentation of evidence before Competent Authorities. A statement to this effect can be included in the Report (FAIS 510).
4.8 Appropriate Procedure refers to the legitimate method or procedure prescribed by laws or regulations to collect and gather evidence. The Procedure followed to gather evidences are required to be documented. For example, while collecting the documents from the Public Authority, the Professional may follow the prescribed procedure such as submission of application and payment of fees etc.
4.9 As a general principle, a public document requires no rigorous proving whereas a private document requires rigorous proving by production of primary evidence. Calling a witness or presenting other arguments are not necessary to prove a public document. Mere production of it is enough for considering it in evidence. The professional may rely on public documents to the extent possible to reduce the burden of proving the documents. The competent authority may lay down guidelines for admissibility of specific documents based on context, relevance and authentication requirements. Notwithstanding this, an illustrative list of public documents is provided below
(a) Revenue and Land Records.
(b) Register of Births and Deaths.
(c) While Papers and Statistics published by Government Departments, Ministries or other Official Agencies.
(d) Court Orders, Decrees, Judgements and other documents issued by competent courts.
(e) Certified copies of certain private documents may also be admitted depending on authentication and contextual relevance e.g. wills, contracts, agreements authorised by a court or a public official or Assessment Orders of Taxation Authorities, Filings to bodies like the Ministry of Corporate Affairs etc.
4.10 Electronic Evidences are required to be submitted by considering the legal provisions of Indian Evidence Act. While gathering electronic records the Professional may take into consideration following aspects related to it:
(a) Regular use of digital technology for recording the transactions. It could be confirmed through the digital record trails.
(b) Information/Data is maintained in the digital format as regular business activity.
(c) Details of specific tools used to collect and analyse the data for submitting as evidence and the limitations of the tools.
(d) Use of techniques like hash or other methods to ensure that images and copies of electronic evidence can be validated the original.
(e) The test of reproducibility as explained in FAIS 420 on “Evidence Gathering in Digital Domain”.
(f) The Certificate related to submission of electronic records as evidences.
(g) While gathering the evidences from Stakeholder, the Professional may obtain the certification about electronic record from such Stakeholder.
4.11 A “chain of custody” refers to the successive custodians of physical items or documents in their original condition. A chain of custody has to be maintained by the Professional for the evidences at hand. Non maintenance of the chain of custody may jeopardise the admissibility of the evidence before competent authorities.
4.12 The Professional would avoid evidence based on Hearsay. Hearsay is a concept in the evidence law where the witness has heard someone else say or read a document prepared by someone else and is not the party who created the document or record or was a witness to its creation.
4.13 Most of the FAI assignments lead to legal proceedings where the report of the Professional is subject matter of such litigation. The Professional, while conducting the engagement would keep in mind that the report may be subject to cross examination and scrutinized at the appropriate forums. Hence, the Professional would follow the evidence gathering process diligently and make appropriate remarks in the report so such the Professional can defend the report in case of cross examination.
5.0 Annexures and Illustrations
5.1 Illustration 1
(A) In case where the objective of the engagement is to confirm whether Revenue of the manufacturing company is overstated by recording certain fictitious sales transactions, the following documents (Illustrative list) may be considered as evidences:
(a) Entries in the books of accounts related to such transactions.
(b) Sales Invoices.
(c) Goods and Service Tax (GST) records.
(d) Customer confirmation with GST details.
(e) Bank statements of the company to trace the amount of sales collected.
(f) Inventory records to ascertain the movement of goods.
(g) Production records which identify manufacturing details such as Batch number, goods identification number if any etc.
(B) While documenting the procedure related to gathering and evaluating the documents for evidence purpose following points may be considered (Illustrative List)
(a) The procedure by which suspicious transactions are identified for example using the data analysis techniques.
(b) The suspicious transactions identified during the Interview with stakeholder and details of it.
(c) The procedure followed to trace the transaction along with the documentary trail.
(d) Evaluation Criteria for sales invoices which are considered as Evidence.
(e) The details of source from where the Invoices are gathered.
(f) The procedure by which GST records gathered- whether request for providing the record submitted through application with GST authorities along with prescribed fees.
(g) The procedure followed to gather the bank account statement and verified that it is signed by bank officials with bank seal.
(h) The transactions recorded in books of accounts or inventory record which is maintained in electronic mode, the digital trails of it, certification from the company officials which is required to be submitted along with electronic records.
5.2 Illustration 2
(A) In case where the matter of dispute is amount is misappropriated through salary payment to Ghost employees, (Illustrative List):
(a) The list of employees who are identified as Ghost Employee.
(b) Identification documents of Ghost Employees such as Photos, PAN, Adhaar Number, Address details etc.
(c) Bank account numbers where the salary of Ghost Employees was credited.
(d) The detail logs of HR software and Payroll System which provides the details about creation of master and processing of salary for Ghost Employees along with user credentials.
(e) Bank statements of the company
(f) Bank statements of the Ghost Employees if provided by the bank on request.
(g) Attendance records with detail logs
(B) While documenting the procedure related to gathering and evaluating the documents for evidence purpose following points may be considered (Illustrative List):
(a) The procedure followed to identify Ghost Employees. For example, the names of Ghost employees revealed during the interview or through the data analysis procedure.
(b) The procedure followed to confirm the PAN, Adhaar Number details associated with Ghost Employees.
(c) Procedure followed to gather the Ghost employee’s bank statements.
(d) Procedure followed to gather electronic records from HR and Payroll software or from related database.
Annexure A – Chain of Custody Format
|Chain of Custody Form (Documentary evidence)|
|Case number||Evidence number|
|Date of document||Reason/Action||Received From|
Annexure B – Chain of Evidences