Difference Between Auditing and Investigation
Auditing is the process of reviewing the book of accounts of a certain entity and reporting on it. An investigation is considered to be an enquiry which is conducted for establishing a specific truth or fact about that entity. The difference between auditing and investigation is explained vividly in the below table -
These were the differences between investigation and auditing.
Auditing
Auditing is an unprejudiced and efficient assessment of the financial statement of a substance to offer input on an evident and reasonable view. The word financial statement may incorporate Balance Sheets with Notes to Accounts, Income Statement and Cash Flow Statement. The term element alludes to any association whether it is profit-making or a magnanimous organization. Size and structure of the element are likewise unessential.
The essential goal of auditing is to discover and report the level of precision and dependability of the financial statements of an element. Moreover, it guarantees that whether the substance methodically keeps up the books of records, documents and vouchers or not. The auditor plays out the audit procedure. The auditor looks for the accompanying three imperatives of the fiscal summaries:
The arrangement of the financial statement depends on acceptable accounting approaches and its reliable application.
Important Regulations are being followed while setting them up.
Every material, in reality, is unmistakably unveiled in the financial statement.
Investigation
An exertion made to discover the realities behind a specific circumstance to find the fact of the matter is known as Investigation.
For a business association, auditing and investigation go hand in hand. Investigation infers that a composed, detailed and basic assessment of the books of records and transaction records (over a wide period) of a substance, directed for a particular reason or to uncover a reality or to build up reality with the assistance of proof. The most widely recognized strategies utilized during the time spent investigating are searching, perception, cross investigation, inquiry, investigation, and so on.
Investigation in Auditing
Investigation in Auditing comprises the counteraction, recognition and measurement of extortion, tax evasion, dread account and debasement. Investigation in Auditing includes the assessment of records and the utilization of bookkeeping techniques to find money-related inconsistencies and to follow the movement of assets and funds all through associations.
Types of Investigation in Auditing
Some of the common types of investigation in auditing are:
Acquisition of companies
Purchase of business
Prospective investments
Admission of new partners
Fraud
Systems breakdown
Prospective lending
Company Acts Investigation
There are certain procedures for conducting these types of investigation in auditing which are:
Determination of Nature and Scope: The directions of the clients in regards to nature, degree and objective ought to be acquired in certain and unambiguous terms. If the directions are unclear, they may make disarray and issues during the investigation. The directions should cover the territory of the investigation, the motivation behind the investigation and the period to be researched.
Formulation of Investigation Programme: The finding of the previous steps will choose the further course of the investigation. While figuring the auditing and investigation programme, the wide degree and limits are to be resolved. The rundown of records and reports to be confirmed are to be resolved at this stage keeping the goal and motivation behind the investigation intact.
Conduct of Investigation: An intensive investigation, i.e., assessment of different records and archives and assessment of different people of the worry, identifying with the investigation region are to be directed. At each stage, the agent may choose the further course of investigation dependent on the conditions and different discoveries.
Investigation Report: The investigator may respond to every one of his discoveries, break down all the supporting reports and explanations, completely look at the investigation records and make inferences. At the same time, he should have a receptive outlook, free from pre-imagined thoughts.
Main Differences between the Process of Auditing and Investigation
Auditing refers to the process of inspecting the financial statement of an entity and then giving an independent opinion on it. While, in an investigation, a detailed study of the account books is carried out to discover the truth of the matter. Thus auditing can be said to be a general examination in nature, while the investigation is a critical process.
The evidence that one receives during an audit process is persuasive. On the other hand, the nature of evidence obtained from the Investigation process is conclusive.
Auditing is generally conducted on a yearly basis, but Investigation is conducted for specific concerns and needs of a company.
Auditing is performed by the auditor of the firm, whereas an expert team (unbiased nature) is constituted for the purpose of an investigation.
Auditing is compulsory for every organisation. Whereas, the investigation process is discretionary in nature. The act of auditing verifies the truth and presents an unbiased perspective of the financial statement of the organisation whereas Investigation is performed to establish a fact.
The appointment of an auditor for auditing purposes is made by the mutual decisions of the shareholders of the company. However, an investigator is solely appointed by the owners/management or through the involvement of one-third party.
The scope of auditing is broad, as it attempts to give opinions on various aspects concerning the general financial statement of the firm. Contrary to this, the scope of the investigation is limited as it attempts to answer only those questions whose answers are being actively searched for, by the company through its engagement letter.
Conclusion
We can now conclude that auditing is a general annually performed process, common for all organisations. Auditing can be performed with the help of an internal auditor or an external auditor. The internal auditor is himself an employee of the company who is appointed by the management while the government appoints the external auditor.
Investigative processes are quite rare, as it is not commonly performed in any organisation. For an investigation, an expert team must be constituted from outside of the organisation to conduct and report its investigative findings.
FAQs on Investigation Vs Auditing
1. What is the investigation in Auditing?
An Investigation in auditing is a detailed assessment of records and enquiry into the situation of the business or for a particular reason. The difference between investigation and auditing does not matter here as it includes the way toward investigating, gathering and introducing realities in a way which empowers the gatherings to realize the basic realities in regards to the issue under enquiry. The investigation covers more than one financial period and the programme relies upon each sort of investigation.
2. What are the objectives of investigative Auditing?
The main objective of investigative auditing is to establish the truth of the fact that concerns the organisation at a given point in time. It is a critical, in-depth type of auditing that remains confidential and done with the help of an independent expert group. The shareholders may not be involved in the process. Various investigative processes such as perception analysis, inquiry and cross investigation seek to find answers for the concerns mentioned in the engagement letter.
3. What are the contents of Investigations Report?
Following are the contents of an investigation report:
They must contain information regarding the source of investigation, investigator’s primary concerns and purpose of investigation.
They must also highlight the evidence collected during the process and develop a logical conclusive statement based on them.
They must secure all the information and preserve it for confidential reasons, as directed by the company.
4. Why is auditing important? State the types of evidence that are admissible in investigative auditing.
Auditing of the general type is a customary process for all organisations in the business world to evaluate, analyse and outline its growth, concerns and overall structure of its financial statement for a given year. It is an annual process of persuasive financial statements in nature. However, investigative auditing works on the principle of evidence. Following are some of the audit evidence, that may be collected by investigators in their process:
Documentary evidence
Interviews for perception analysis
Observatory evidence
Accounting system
Recalculation and reperformance
Inspection and inquiry, etc.
5. State any two major differences between the general and investigative auditing process.
There are several differences between investigative and general auditing, as mentioned in this article. Some of them include:
The purpose of general auditing is to prepare an unbiased view of the overall company’s financial statement. While investigative auditing is to establish the facts of the matter in special circumstances such as the acquisition of companies or incidence of fraud within the firm.
Secondly, general auditing is an obligatory process while investigative auditing is not customary and only done as per company needs.