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 $11.4 billion in 2018, having grown at a compound annual growth rate (CAGR) of 5.8% since 2014. It is expected to grow at a compound annual growth rate (CAGR) of 7.2% to nearly $15.0 billion by 2022.
Growth in the historic period resulted from increased corporate fraudulent activities and outsourcing of back-end operations to low-cost economies. Factors that negatively affected growth in the historic period were stringent government policies and political and social instability.
Going forward, public private collaborations and technological developments will drive the growth. Factors that could hinder the growth of the forensic audit market in future include skill shortages and the emergence of in-house audit teams.
Forensic Audit Market Drivers
The key drivers of the forensic audit market include:
Increased Cases Of Corporate Fraud
During the historic period, the increased incidences of corporate fraudulent activities led to the rise in demand for forensic audit services. Rising numbers of high-profile frauds and preventive approach of regulators associated with amendments in laws were the factors responsible for forensic audit becoming an emerging and revenue generating business for accounting firms. In 2014, about 88 corporate frauds were reported in the USA, for instance, of which 54 were recommended for prosecution and 79 people were sentenced. Large accounting companies are strengthening and investing more time and money into their forensic auditing teams. , Exposure of frauds committed by financial and non-financial companies led to several changes in the corporate governance of firms around the world, driving the demand for forensic audit services.
Forensic Audit Market Restraints
The key restraints of the forensic audit market include:
Government Decisions And Policies
Forensic audit companies are often influenced by government decisions and policies. Governments of various countries have limited the access to data provided to forensic auditors to protect the privacy of individuals. For instance, the Health Insurance Portability and Accountability Act (HIPAA) in the USA mandates that certain pieces of personal information compiled in corporate records, including all medical information or personal e-mail correspondence, must be removed from the records that are handed over to a forensic auditor. Government policies such as these restricted the growth of the forensic audit market in the historic period.
Forensic Audit Market Trends
Major trends influencing the forensic audit market include:
Enabling Improved Governance And Conduct
Forensic audit services 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 global forensic audit market by end-use industry will arise in the financial services segment, which will gain $1.64 billion of global annual sales by 2022. The top opportunities in the global forensic audit market by type of investigation will arise in the event and data analysis segment, which will gain $0.83 billion of global annual sales by 2022. The forensic audit market will gain the most in the USA at $0.74 billion. Market-trend-based strategies for the forensic audit market include the use of artificial intelligence to detect frauds to save costs, and the adoption of block chain technology to improve audit services. Player-adopted strategies in the forensic audit market include investing in geographical expansion, expanding the service offerings, and strengthening the business through mergers and acquisitions.
Recommendations – To take advantage of these opportunities, The Business Research Company recommends the forensic audit companies to focus on the artificial intelligence and block chain technology to improve service offerings, expand service portfolios through collaborations and mergers and acquisitions, and expand in emerging markets, among other strategies.
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
Financial services was the largest segment of the forensic audit market by end use industry in 2018 at 38.5%. The financial services segment is also expected to grow at the highest CAGR of 8.3%.
- a) Financial Services
- b) Mining And Oil & Gas
- c) Manufacturing
- d) Healthcare
- e) Other Services
- f) Others
By Type Of Investigation –
The forensic audit market can be segmented by type of investigation
Event and data analysis was the largest segment of the forensic audit market by type of investigation in 2018 at 18.1%. The event and data analysis segment is also expected to grow at the highest CAGR of 8.8%.
- a) Event And Data Analysis
- b) Regulatory Investigations
- c) Cross Border Investigations
- d) Corruption And Bribery Investigation
- e) Accounting, Malpractice And Securities Investigation
- f) Other Forensic Audit Services
By Geography- The forensic audit market is segmented into
o Western Europe
o Asia Pacific
o Eastern Europe
o South America
o Middle East
North America was the largest market for forensic audit, accounting for 42.0% of the global market in 2018. It was followed by Western Europe, Asia-Pacific and then other regions. Going forward, Asia-Pacific will be the fastest-growing region in the forensic audit market.
Forensic Audit Competitive Landscape
Major Competitors are:
Other Competitors Include:
- • Ernst & Young Global Limited
- • PwC
- • Deloitte Touche Tohmatsu Limited
- • KPMG International
- • BDO Global
- • Grant Thornton
- • Navigant Consulting, Inc.
- • Baker Tilly
- • FTI Consulting, Inc.
- • RSM US LLP
- • MDD Forensic Accountants
- • Froese Forensic Partners
- • Carter Backer Winter LLP
- • BMR Advisors
- • Mazars
- • FTI Consulting
- • Hernandez Randich & Asociados
- • Crowe
- • Marcum Bernstein & Pinchuk LLP
- • Parker Randall