Forensic Audit Market Definition
The forensic audit market consists of sales of forensic audit services by entities (organizations, sole traders and partnerships) that apply auditing and investigative skills to situations that may have legal implications. A forensic audit is an examination and evaluation of a firm`s or individual’s financial, compliance, background information and other types of information, to use as an evidence in a court of law or legal proceedings. Examples of forensic audits’ use range from prosecuting a party for fraud, embezzlement or other financial claims, to distributing assets during separation or divorce proceedings, although the vast majority of the market is business to business (B2B).
Forensic Audit Market Size
The global forensic audit market reached a value of nearly $12,180 million in 2019, having increased at a compound annual growth rate (CAGR) of 6.3% since 2015.
Growth in the historic period resulted from increased number of financial fraud cases, growing scope of forensic audit and outsourcing of backend operations. Factors that negatively affected growth in the historic period were uncertain government decisions and policies and varied accounting standards in different geographies.
Going forward, increasing public and private collaborations, technological developments and rising mergers and acquisition activities will support the market growth in forecast period. Factors that could hinder the growth of the forensic audit market in the future include shortage of skilled labor, expected COVID-19 pandemic causing global recession and emergence of in-house forensic audit.
Forensic Audit Market Drivers
The key drivers of the forensic audit market include:
Public Private Collaboration – Governments of various countries across the world are collaborating with private forensic audit companies to develop and enhance their country’s business environment. The governments and security exchanges of several countries are appointing private audit firms to keep a check on companies and prevent them from committing fraud. For instance, in 2018, the Securities and Exchange Board of India (SEBI) collaborated with private consulting firms such as KPMG, Ernst and Young (EY), and Deloitte to conduct forensic audits of the financial statements of listed companies. Such collaborations are expected to drive the forensic audit market in the forecast period.
Forensic Audit Market Restraints
The key restraints on the forensic audit market include:
Emergence Of In-House Forensic Audit – Major forensic audit firms are facing difficulties in recruiting large companies as their clients. Companies increasingly prefer to appoint a permanent and internal forensic auditor to assess the financial records of the company on a regular basis instead of waiting for a yearly external audit. Regular internal forensic audits can help companies detect fraud and provide remedies at an early stage. The appointment of internal and permanent forensic auditors across large multi-national companies is expected to hinder the growth of the forensic audit market in the forecast period.
Forensic Audit Market Trends
Major trends influencing the forensic audit market include:
Enabling Improved Governance And Conduct
Forensic audit are becoming frequent and widespread in banks and large corporations for improved governance and smooth conduct of operations. Public sector and private sector banks perform forensic audits to detect the accounts which have the potential to become non-performing assets (NPAs) and also to identify any frauds in these accounts. For instance, the Government of India has made mandatory for all the state-run banks to perform forensic audits to identify all possible NPAs. Large corporations are also conducting frequent forensic audit and background checks to ensure that their potential CEOs and other top executives have clean track records. These are performed by forensic audit firms or executive search firms that conduct forensic background checks. In 2018, EY was appointed by an Indian multinational company to conduct a forensic audit and background check on its potential candidate for CEO. The forensic audit report submitted by EY found that the CEO candidate of the company had a track record of fraudulent dealings.
Use Of Social Media Analytics In Forensic Audits
Forensic audit companies are using social media analytics to detect frauds. Social media analytics is an application for gathering data from social media websites by analyzing posts, chats and profiles of members to form meaningful insights for making decisions. Forensic audit firms use this tool to detect frauds and crimes generated on social media. For instance, EY uses social media analytics to identify unique frauds in social media.
Opportunities And Recommendations In The Forensic Audit Market
Opportunities – The top opportunities in the forensic audit market segmented by type of investigation will arise in the event and data analysis market segment, which will gain $774 million of global annual sales by 2023. The top opportunities in the forensic audit market segmented by end user will arise in the financial services segment, which will gain $1,522 million of global annual sales by 2023. The forensic audit market size will gain the most in the USA at $565.5 million.
Recommendations – To take advantage of these opportunities, The Business Research Company recommends the forensic audit companies to investing in cognitive technologies for risk management, block chain technology to conduct transparent, secure, cost and time efficient audits, increase the usage of drones to boost the forensic audits, investing in data analytics tools to gain deep insights, and increase usage of social media analytics in forensic audits.
Forensic Audit Market Segmentation
The forensic audit market is segmented by end-use industry, by type of investigation, and by geography.
By End-Use Industry -
The forensic audit market can be segmented by end-use industry into
- a) Financial Services
- b) Mining, Oil & Gas
- c) Manufacturing
- d) Healthcare
- e) Other Services
- f) Others
The financial services was the largest segment of the forensic audit market segmented by type of end use industry, accounting for 38.9% share of the total market in 2019. Going forward, the financial services segment is also expected to be the fastest growing segment in the forensic audit market, at a CAGR of 7.2%.
By Type of Investigation -
The forensic audit market can be segmented by type of investigation into
- g) Event and Data Analytics
- h) Regulatory Investigations
- i) Cross Border Investigations
- j) Corruption and Bribery Investigation
- k) Accounting Malpractice, and Securities Investigations
- l) Other Forensic Audit
The event and data analysis market was the largest segment of the forensic audit market segmented by type of investigation, accounting for 18.4% share of the total market in 2019. Going forward, the event and data analysis market segment is also expected to be the fastest growing segment in the forensic audit market, at a CAGR of 7.7%.
By Geography- The forensic audit market is segmented into
- o North America
- o Western Europe
- UK
- Germany
- France
- Spain
- Italy
- o Asia Pacific
- China
- Japan
- India
- Indonesia
- Malaysia
- Hong Kong
- Singapore
- South Korea
- Australia
- o Eastern Europe
- o South America
- o Middle East
- o Africa
North America was the largest region in the forensic audit market, accounting for 40.9% of the global market in 2019. It was followed by Western Europe, Asia Pacific and then the other regions. Going forward, the fastest growing regions in the forensic audit market will be Asia Pacific and Africa.
Forensic Audit Competitive Landscape
Major Competitors are:
- • PwC
- • Ernst & Young Global Limited
- • Deloitte Touche Tohmatsu Limited
- • KPMG International
- • BDO Global
Other Competitors Include:
- • FTI Consulting, Inc.
- • Grant Thornton International Ltd.
- • RSM International Ltd.
- • Duff & Phelps, LLC
- • AlixPartners, LLP
- • Carter Backer Winter LLP
- • MDD Forensic Accountants
- • Baker Tilly
- • Froese Forensic Partners
- • BMR Advisors
- • Grant Thornton
- • Mazars
- • Marcum Bernstein & Pinchuk LLP
- • PKF Au
- • Pinkerton
- • Parker Randall
- • Crowe