In general, Auditing is conducted to verify the extent of truthfulness and fairness of the financial records of an entity, but Investigation is performed to prove a certain fact. The scope of the auditing is based on the Standards on Auditing, but the scope of the investigation rests on the terms of engagement. It is quite normal that people get confused between these two terms easily due to lack of knowledge and proper understanding.
Auditing is a process of identifying whether the results of accounting information are accurate and according to the specified norms or not. Unlike investigation is a severe examination of specific records so as to highlight a fact. The article attempts to shed light on the difference between conventional auditing and investigation.
Content: Auditing and Investigation
|Basis for Comparison||Auditing||Investigation|
|Meaning||The process of inspecting the books of accounts of an entity and reporting on it, is known as Auditing.||An inquiry conducted, for establishing a specific fact or truth is known as Investigation.|
|Nature||General Examination||Critical and in depth examination.|
|Evidences||The evidences are persuasive in nature.||The evidences are unquestionable, therefore, its nature is decisive.|
|Time Horizon||Annually||As per requirement|
|Performed by||Chartered Accountant||Experts|
|Appointment||an auditor is appointed by the shareholders of the company.||The management or shareholders or one-third party can appoint investigator.|
|Scope||Seeks to form an opinion on financial statement.||Seeks to answer the questions, that are asked in the engagement letter.|
Definition of Auditing
Auditing is an impartial and methodical examination of the financial statement of an entity to give an opinion on true and fair view. The word financial statement may include Balance Sheet with Notes to Accounts, Income Statement and Cash Flow Statement. The term entity refers to any organisation whether it is profit making or a charitable institution. Size and structure of the entity are also irrelevant.
The basic objective of auditing is to find out and report the degree of accuracy and reliability of the financial statements of an entity. Additionally, it ensures that whether the entity systematically maintains the books of accounts, documents and vouchers or not. The auditor performs the audit process. The auditor seeks the following three requisites of the financial statements:
- The preparation of the financial statement is based on acceptable accounting policies and its consistent application.
- Relevant Regulations are being followed while preparing them.
- All material facts are clearly disclosed in the financial statements.
Definition of Investigation
In general, an effort made to find out the facts, behind a particular situation, to discover the truth is known as Investigation.
For a business organisation, investigation implies that an organised, detailed and critical examination of the books of accounts and transaction records (both past and present) of an entity, conducted for a specific purpose or to reveal a truth or to establish a fact with the help of evidence. The most common methods employed in the process of investigation are searching, observation, interrogation, inquiry, inspection, etc.
The process of investigation is performed by an expert team to prove a certain fact and conducted as per the requirements of the organisation; there is no specific period.
Key Differences Between Auditing and Investigation
The following are the major differences between auditing and investigation:
- The process of inspecting the financial statement of an entity and then giving an independent opinion on it is known as Auditing. A careful and detailed study of the books of accounts to discover truth is known as Investigation.
- Auditing is a general examination while Investigation is critical in nature.
- The evidence obtained from audit process are persuasive. Conversely, the nature of evidence obtained from Investigation process is conclusive.
- Auditing is conducted every year, but Investigation is conducted as per the needs of the organisation.
- Auditing is performed by the auditor whereas an expert team does the performance of an investigation.
- Auditing is compulsory for every company. On the other hand, the investigation is discretionary.
- Auditing verifies the true and fair view of the financial statement while Investigation is performed to establish a fact.
- the appointment of an auditor is made by the shareholders of the company. As against this, an investigator is appointed by the owners/management or one-third party.
- The scope of auditing is general, which attempts to give an opinion on the financial statement of the company. On the contrary, the scope of the investigation is limited as it attempts to answer only those questions that are asked in the engagement letter.
Auditing is a general process which is common for all the organisation, as it is performed annually. It can be performed either the internal auditor or external auditor. The internal auditor is an employee of the organisation who is appointed by the management while the government appoints the external auditor.
The investigation is quite rare, as it is not commonly performed in any organisation. An expert team is brought to the organisation to conduct it and report the relevant facts. The audit report is submitted to the interested parties like shareholders, creditors, government, suppliers, management, etc. whereas the investigation report is handed over to the party who organised the investigation.