Auditing and investigation though similar, are different in some way and this article sets to explore what the differences between the two are. The article will begin with their respective definitions before moving on to tackle the differences.
Distinguish between Auditing and accounting
Accounting is a process that’s performed on a daily basis, as recording and analyzing transactions happen on a daily basis within the organization or for any business. Hence its a very involved activity for financial managers and accountants while auditing is an assessment performed monthly, quarterly, or per year.
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 views. The word financial statement may include Balance Sheet with Notes to Accounts, Income Statement and Cash Flow Statement.
The term entity refers to any organization whether it is profit-making or a charitable institution. The 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 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 their consistent application.
Relevant Regulations are followed while preparing them.
All material facts are clearly disclosed in the financial statements.
Definition of Investigation
What is an 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 organization, investigation implies an organized, 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 and so on.
An expert team performs the process of investigation to prove a certain fact and conducted as per the requirements of the organization; there is no specific period.
Key Differences Between Auditing and Investigation
The following are the major differences between auditing and investigation:
Auditing is the process of inspecting the financial statement of an entity and then giving an independent opinion on it. A careful and detailed study of the books of accounts to discover the truth is known as investigation.
Auditing is a general examination while the investigation is critical in nature.
The evidence obtained from the audit process is persuasive. Conversely, the nature of evidence obtained from the Investigation process is conclusive. Auditing is conducted every year, but the investigation is conducted as per the needs of the organization. It is performed by the auditor whereas an expert team does the performance of an investigation.
Additionally, 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 an investigation establishes a fact. The shareholders of the company appoint an auditor. Meanwhile, the owners/management or a third party appoints an investigator.
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 asked in the engagement letter. As can be seen in the article, auditing and investigation do exhibit similar traits but are not exactly the same, they are different.