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Legal Aspects Of Forensic Investigation In Malaysia – Forensic Accounting



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Introduction

Forensics is crucial to assist in proving a crime. However, it
is more than a crime scene investigation, as forensics itself
branches out to various types of forensics, each for their
respective purposes or different crimes. Forensics is an intercept
of science and law, providing the new tools and methodologies to
discover the truth of a case.1 Ultimately, the goal of
forensics is to prove or disprove the offence and to find the real
perpetrator of the crime.2

The most common forensics are DNA analysis, forensic pathology,
trace evidence analysis, forensic toxicology3 and so on.
Considering the broad variety of forensics that can be used for
different types of crime, this article focuses on legal forensics.
Legal forensics are used in investigation involving, inter alia,
corruption, asset misappropriation, financial statement fraud and
many more.4

This article is in the view that legal forensics is
recommendable even if there is an existing service of forensic
accounting and/or auditing. The focus is on the examination of a
company’s financial documents to derive evidence that can be
used in a court of law or legal proceeding. This article further
discuss on the shortcomings of forensic audit and how legal
forensics are able to overcome these shortcomings for a better
investigative report.

Forensic Auditing for Financial Crime in Malaysia

Forensic accounting and/or auditing are often used for cases of
financial crime. Financial crime is an umbrella term referring to
any illicit activity involving the illegal acquiring of
other’s property.5 It is widely defined as an
intentional act of deception involving financial transactions for
personal gain.6 It encompasses fraud, bribery, money
laundering and so on. Most cases of financial fraud involve
intricate financial transactions.7 The major financial
crime case in Malaysia is the 1Malaysia Development Berhad Scandal
(“1MDB scandal”).

The government is in need to achieve asset recovery, however,
with the large sum and high volume of money transactions, being
made, it is not easy to keep track of the transaction, let alone to
trace it back to the very start of the crime to determine the true
perpetrator. This is where forensic audit comes into play to assist
in seeking to derive evidence that can be used in
court.8 Forensic investigation of such is usually
carried out by audit firms, such as Deloitte, where they provide
forensic investigations including data analytics and computer
forensic.9 They will strategically plan the
investigation, collect the evidence, understand internal controls
and interview the suspects.10 To collect evidence,
different techniques can be used such as substantive techniques,
analytical procedures, and computer-assisted audit
techniques.11 Apart from audit, accounting is also an
important expertise required in a financial crime
investigation.

Shortcomings of the Forensic Auditing and Accounting

Generally, it would be difficult for accounting and audit
professionals, who have knowledge of a single specialty, to
identify and to find out such crimes. Forensic accounting requires
fact-finding exercise from different perspectives including
accounting and law.12 However, forensic auditing is
mostly done by audit firms. Investigation done by the audit or
accounting firm is often insufficient.13

The main reason is that, unlike legal firms, accounting and
audit firms have insufficient, if any, legal knowledge. While
investigative auditors and accountants have their requisite skills
and expertise in finance, lawyers have the skills and expertise in
providing a more comprehensive analytical assessment with regards
to the legal implications.14 Lawyers are able to assist
in determining the law infringements, the relevant remedies
available to the client, the ultimate recovery process, and further
actions to be taken against the wrongdoer.15

Another shortcoming of forensic auditing is the lack of control
over the dissemination of information.16 In this event,
there is no guarantee of confidentiality. The scrutiny of the
company’s financial records will be done by an external
forensic auditor or accountant, and confidential information can
potentially be leaked.17 Contrastingly, confidentiality
can be guaranteed in a law firm. Legal forensics, like any other
services provided by lawyers, are subject to lawyer-client
privilege.18

The Legal Aspect and the Duty of the Law Firm in Forensic
Investigation

In general, there are a few legal aspects of forensic
investigation that the legal forensics are able to ensure
compliance of it. The legal aspect of forensic investigation, in
general, is the rules on disclosure of expert evidence or reports
and evidentiary admissibility rules.19

Naturally, lawyers have the relevant expertise to ensure the
compliance of these legal aspects. Besides, law firms play an
important role in forensic investigations mainly because of the
type of service that can be provided by the lawyers.
20

They are able to provide an independent dispute advisory
relating to the outcomes of the investigation.21 From
thereon, they can support clients in preparing for high-stakes
litigation, arbitration, fraud, and compliance
investigations22 If the client wishes to take further
actions after the investigation, law firms can also assist in the
preparation and drafting of the necessary documents, such as
affidavits and case reports, and advise on the suitable settlement
options.

Ultimately, the evidence obtained from forensic accounting,
along with well-grounded corporate expertise and knowledge on
corporate laws, would provide clear and detailed analysis to the
clients involved. The analysis would enable the clients to
understand the prospects of their case, potential or pending
litigation, dispute resolution proceedings, the need to uncover and
document fraud, or any necessary next steps to be
taken.23 It is a whole investigative process provided by
the law firm which is convenient and more systematic considering
that the whole process is done only in one place, the law firm. As
mentioned above, most importantly, law firms guarantee
confidentiality, which is key to client’s
trust.24

In Malaysia, there is no specific legislation that governs legal
forensic investigation procedure, however, the legal forensic
investigation standard can be ensured as the firm would follow the
standards in the ‘Uniform Principles and Guidelines for
Investigations’.25

This was adopted by the 10th Conference of International
Investigators (“Investigation
Guidelines
”) which is consistent with international
conventions such as Article 101, paragraph 3 of the United Nations
Charter.26

With that, lawyers are to carry out their duty up to a
reasonable standard throughout the investigative process which
includes identifying witnesses, collect documents, and analyse and
assemble the collection of information into exhibits27
while also able to ensure the admissibility of the evidence
collected. Investigation and analysis of evidence is a constant
process.28 Hence, it is a continuing duty to ensure
reasonable standards in providing the service of legal forensics
are met.

Conclusion

Financial crime has always been a concern in Malaysia. With the
rise of financial scandals, the field of legal forensics has grown
into a sector of high demand. Legal forensics itself has various
investigative process. However, in a more complex case of financial
crime, the combination of skills between lawyers, forensic
accountants and forensic auditors could ensure a smooth and
thorough investigation. This is important to discover the
wrongdoings of one in the company that could lead to negative
consequences caused to innocent people.29

As mentioned, lawyers have the expertise in the legal aspect of
forensic investigation. Hence, it would be of great convenience to
conduct a legal forensic investigation as the lawyers are able to
ensure the compliance of any rules or laws with regards to
evidence. Most importantly, legal forensics provides
confidentiality and reasonable standards of investigation conducted
by the lawyers are ensured.

Footnotes

1. US Legal, ‘Forensic Law’,
(USLegal, n.d.),
accessed 8 July 2022.

2. Sinisa Franjic, ‘Legal aspects of
Forensics’, (Peertechz, 26 April 2018),

(DOI: http://dx.doi.org/10.17352/fst.000011),

accessed 8 July 2022.

3. Incognito Forensic Foundation, ‘All you need to
know about the branches of forensic science’, (Incognito
Forensic Foundation
, n.d.),
accessed 8
July 2022.

4. https://corporatefinanceinstitute.com/resources/knowledge/accounting/what-is-aforensic-audit/.

5. Napier, ‘What is financial crime?’,
(Napier, n.d.),

accessed 8 July 2022.

6. Bank Negara Malaysia, ‘What is financial
fraud?’, (Bank Negara Malaysia, n.d.),

accessed 8 July 2022.

7. Ibid.

8. Carla Tardi, ‘Forensic Audit Definition’,
(Investopedia, 1 July 2022),


accessed 13 July 2022.

9. Deloitte, “Deloitte Forensic Malaysia Predict.
Detect. Respond.”, (Deloitte), 5.

10. CFI Team, ‘Forensic Audit Guide’, (CFI,
26 February 2022),

accessed 13 July 2022.

11. Ibid.

12. Dong Renzhou, ‘Research on Legal Procedural
Functions of Forensic Accounting’, (2011), Energy Procedia,
2147-2151, 2149.

13. Lee Kin Hing and Mohammad Ashraf Mohamed Sopiee,
‘Legal Investigative Audit’, (Azmi &
Associates
, n.d.),

accessed 14 July 2022.

14. Ibid.

15.bid.

16. Ellis Roanhorse, ‘The Advantages and
Disadvantages of Investigative Auditing Firms’,
(Chron., n.d.),

accessed 14 July 2022.

17. WealthHow, ‘Merits and Demerits of Forensic
Accounting’, (WealthHow, n.d.), https://wealthhow.com/merits-demerits-of-forensic-accounting
accessed 14 July 2022.

18. Lee Kin Hing and Mohammad Ashraf Mohamed Sopiee (n
14).

19. What-when-how, ‘Legal Aspects of Forensic
Science’, (what-when-how, n.d.),

accessed 15 July 2022.

20.Ibid.

21. Ibid.

22. Ibid.

23. Ibid.

24. Ibid.

25. Lee Kin Hing and Mohammad Ashraf Mohamed Sopiee (n
14).

26. Ibid.

27. Howard Silverstone et al, “Forensic
Accounting and Fraud Investigation for Non-experts
”,
(Wiley, 3rd Edition), 156.

28. Ibid.

29. Foodman CPAs & Advisors, ‘Why Attorneys and
Forensic Accountants Need Each Other’

accessed 15 July 2022.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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