What is a forensic or transaction audit in a CIRP?

A forensic or transaction audit in a corporate insolvency resolution process (CIRP) is an independent examination of a corporate debtor's historical transactions, commissioned by the resolution professional (RP), to find dealings that the Insolvency and Bankruptcy Code 2016 allows to be reversed or compensated. Its focus is on avoidance transactions and on fraudulent or wrongful trading under s. 66.

It is different from a statutory audit. It does not give an opinion on the financial statements. Instead, it tests specific transactions against legal criteria, and asks who benefited, at what value, and whether the company was already insolvent.

Why do resolution professionals commission one?

Section 25(2)(j) of the IBC requires the RP to file applications for avoidance of transactions. Regulation 35A of the CIRP Regulations sets the timetable, counted from the insolvency commencement date:

• By day 75: form an opinion on whether the corporate debtor has been subject to transactions under ss. 43, 45, 50 or 66.
• By day 115: make a determination.
• By day 135: apply to the NCLT for appropriate relief.

The NCLAT has treated these timelines as directory rather than mandatory, but they still shape the work. No regulation requires a forensic audit as such. Resolution professionals typically appoint a transaction auditor, under their power in regulation 27 to engage professionals through an objective and transparent process, because forming a defensible opinion on years of transactions within 75 days is rarely possible otherwise.

What does the audit examine?

A typical scope includes:

• Preferential transactions (s. 43). Payments or security given to creditors, sureties or guarantors for existing debts within the look-back period, especially to related parties.
• Undervalued transactions (s. 45). Gifts and sales of assets for significantly less than value, outside the ordinary course of business.
• Transactions defrauding creditors (s. 49). Undervalued deals entered into deliberately to keep assets from creditors, which have no look-back limit.
• Extortionate credit (s. 50). Borrowing on exorbitant terms.
• Fraudulent or wrongful trading (s. 66). Business carried on to defraud creditors, or continued trading by directors who knew insolvency was unavoidable.

Auditors also commonly report diversion of loan funds, related-party flows, fictitious sales or purchases, and unexplained balance write-offs, which may be relevant to lenders' separate fraud and wilful default processes.

How does the work proceed?

1. Collect books, bank statements, GST and tax filings, MCA records and contracts, and identify related parties.
2. Use data analytics to flag unusual counterparties, round-sum transfers, back-dated entries and circular flows.
3. Trace funds through bank accounts to their end use, using forensic accounting techniques.
4. Seek explanations from former management and counterparties.
5. Report each finding with its legal classification, value, parties and supporting evidence, for the RP to decide on filing.

What changed in 2025 and 2026?

The CIRP (Fifth Amendment) Regulations 2025 require the information memorandum to list identified avoidance and fraudulent or wrongful trading transactions and to keep that list updated. A resolution plan cannot assign such claims unless they were disclosed in that way before the bid deadline.

The IBC (Amendment) Act 2026, in force on these points from 26 May 2026, revised the look-back computation, confirmed that avoidance proceedings survive the CIRP, and allowed creditors to file applications for transactions the RP did not report. That raises the cost of an incomplete review.

How does it differ from related terms?

A forensic audit is the broader discipline. A transaction audit in CIRP is a forensic audit with a statutory purpose, a fixed timetable and legal tests defined by the IBC. It is also distinct from forensic audits commissioned by banks on stressed assets before insolvency. For a practical guide, see how resolution professionals identify PUFE transactions.

Spectra Forensics' stressed asset and insolvency forensics service covers transaction audits for resolution professionals and liquidators.