Investigation vs Auditing

Auditing is the general check to verify the accuracy of the accounts. But in certain cases, a more in-detail look is required into specific areas. This is what we call an investigation which forms a part of forensic accounting. So let us further study the concept and differences of auditing and investigation.

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Forensic Accounting and Investigation

Sometimes a business needs to find out all the facts behind a particular situation or scenario, and thus conducts a thorough investigation into the matter. When the issue is related to finance or accounting in any way, we use forensic accounting process of investigation. It basically entails a critical examination of the books of accounts.

For example let us say in the process of auditing, the company has discovered the possibility of fraud. Then we will call a qualified accountant to conduct an investigation.

He then will try and investigate the character of the fraud, the level of breach, the amount of the loss, the source of the fraud etc. Then the company can work on closing any loopholes for future security,

There are various methods to conduct an investigation. These include many of the same techniques involved in auditing such as searching, research, observations by the investigator, inquiries, inspections etc.

Browse more Topics under Concept Of Auditing

• Meaning and Definitions of Auditing
• Basic Principles Governing an Audit
• Principle aspects covered by auditing
• Advantages and Limitations of Audit

Differences between Auditing and Investigation

Often many people confuse the terms auditing and investigation and use them interchangeably. However, they are two very distinct terms. Learning about the points of differences between auditing and investigation will help us understand both the concepts better.

• In auditing, we will inspect and audit the entire books of accounts and subsequently write a report on it. In an investigation, however, the focus is on the critical examination of a specific fact to learn the whole truth about the matter.
• Another point of difference between auditing and investigation is their nature. Auditing is more of a general and basic examination of the accounts. An investigation, on the other hand, is more of in-depth scrutiny. In fact, the investigation starts with a negative outlook, i.e. they acutely look for frauds and errors.
• In most cases, auditing occurs annually, once a year. An investigation is only done when a situation calls for it.
• The evidence is auditing is always persuasive in nature. But in an investigation, the evidence must be conclusive and decisive. There can be no doubt about its surety.
• In some cases, auditing is compulsory or mandatory according to the law. This is known as a statutory audit and is done according to the standards of auditing. It is performed by external auditors. However, the investigation is never obligatory.
• As per the rules of the ICAI, only by qualified Chartered Accountants can perform an audit. And in case of a company, the appointment of the auditor can only be done by shareholders. But any qualified accountant can perform an investigation. He must be an expert in his field. Shareholders/management appoint the auditor.

Solved Question for You

Q: Is the scope of auditing and investigation the same? 

Ans: No, the scope of auditing and investigation is very different. The scope of auditing is for the auditor to examine the financial accounts and give his opinion on them. The scope of the investigation is to seek answers and explanations for specific questions or problems.