Difference Between Auditing and Investigation

Edited by Diffzy | Updated on: July 01, 2022

       

Difference Between Auditing and Investigation Difference Between Auditing and Investigation

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Introduction

Auditing is led to check and verify the degree of truthfulness and fairness of the financial records of an element, however, Investigation is performed to demonstrate a specific reality and fact. The extent of the auditing depends on the Standards of Auditing, yet the extent of the investigation lies based on the conditions of commitment. It is very common that individuals to get confused between these two terms effectively because of the absence of information and appropriate understanding.

Auditing is a process of recognizing whether the results of bookkeeping data are exact and as per the predetermined standards or not. Not at all like investigation is a serious examination of explicit records to feature a reality. The article endeavours to reveal insight into the contrast between regular auditing and investigation.

While both were considered as a feature of the association's activities to guarantee that a better quality of procedure or processes are met, an investigation is rare. Insightful auditing is just precluded from relying upon the Audit results, particularly when a few cases ended up being suspicious of fraudulent activities.

Auditing vs. Investigation

The main difference between Auditing and Investing is that auditing is analyzing and writing about books of records of an organization while the investigation is a course of knowing a specific reality, truth or episode. Auditing requires general review while investigation requires centre and top to bottom assessment. Auditing is directed yearly yet the investigation is led by the prerequisite of the client.

They additionally differ in terms of individuals associated with doing the Audit and Investigation. Auditing requires just sanctioned examiners while investigation requires individuals with mastery both in investigation and bookkeeping fields.

An Auditor is an individual approved to confirm or survey the exactness of financial records while a specialist does an investigation or a formal inquiry.

Difference Between Auditing and Investigation in Tabular Form

Table: Auditing vs. Investigation
Parameter of Comparison
Auditing
Investigation
Definition
Is an assessment or review of records, processes and activities to guarantee consistence and integrity.
A broad investigation to demonstrate a specific reality or fact.
Depth
General examination.
Critical and extensive.
Purpose
To assemble and keep up with trust inside an entity or gathering prevents fraudulent activities and guarantee exclusive expectations and cycles is generally maintained.
This is possibly directed when there is likely untrustworthiness in a specific fact.
Nature of Report
General
Confidential
Mandatory
Yes
No
Performing entities
Internal or External Auditor/Accountant
Experts

So the tabular form shows the basic Differences between Auditing and Investing. Now that we have done it, let’s move on and know all the differences in detail. We will also discuss the different types of Audit, the key principles of both and the process that it follows.

What is Auditing?

Auditing, also known as Audit, is the inspection or examination process, activities and records in order to verify compliance.

The majority of Audits we know refer to financial auditing. This involves inspecting a number of books or documents or accounts to verify that they are accurate and comply with the laws and regulations.

Auditing is necessary to build trust and trust in a company, or in a specific entity that needs public trust. An internal audit is required for all companies to prevent fraud. There are at most nine (9) types of Audit.

  1. Internal Audit - This is performed within a company. The Auditor works under the same umbrella. Internal Audit is used by most businesses to evaluate the operation of the business and check its finances.
  2. External Audit - An audit is conducted by an entity other than the company. The most common external auditors are usually someone from an independent accounting firm or tax agency.
  3. Financial audit- is one of the most popular types of Audits. A financial audit is usually conducted by an external auditor to verify the accuracy of financial statements and records. An auditor inspects all financial transactions, creditors, and investors.
  4. An operational audit - has the exact same goals as Internal Audit. An operational Audit examines the company's processes, procedures, goals, and results. Both internal and external auditors are possible.
  5. Compliance Audit - This refers to compliance to certain business processes and rules against external laws.
  6. An Auditor conducts a Payroll Audit to verify accuracy. Auditing includes employee wages, taxes and benefit deductions. It also involves withholding.
  7. IRS Tax Audit - This audit is done to verify the accuracy of tax returns. Ensure that there are no discrepancies or that the company didn't overpay or underpay taxes.
  8. Information System Audi - This refers to an audit for software and IT companies.
  9. Pay Audit - This is the process of identifying pay discrepancies among employees.

As we are done with some details of auditing, we will discuss the investigation. The differences between Auditing and Investing determine which one needs to be followed by you and your organization so that we can distinguish between them and know all about it.

What is an Investigation?

An investigation is an act of investigating or conducting research in order to discover something. Audit investigations, however, are the examination of financial books and financial procedures in order to uncover irregularities and track the movement of assets or funds within an organization. These cases are known as investigative auditing. This is a field of expertise that deals with the prevention and qualification of fraud, fund embezzlement and mismanagement. It also covers financial and operational activities. This type of investigation uses nearly all methods available to determine if there are any discrepancies in company resources.

The investigative audit is not mandatory, unlike Audit. It is often used to investigate financial discrepancies, illegal company funds use, embezzlement, and other issues.

Investigative auditing includes the following:

  1. Organizational financial and operational processes.
  2. Preventive and reinforcement control.
  3. Audits for financial control and identification of financial gaps
  4. Accounting and taxation dues, mergers and acquisitions, investments, and other business activities.

What do an audit and investigation look like?

The audit is defined as "an examination of accounting records with the aim of establishing if they accurately and fully reflect the transactions to whom they purport to relate."

Auditing has some key features:

  • Audit is a systematic examination and review of the books of accounts of a company.
  • Audits are performed by an independent person or group who is qualified to do the job.
  • This involves verifying both the results of the Profit and Loss Account and the state of affairs as reported by the Balance Sheet.
  • A client may provide vouchers, documents or information to support an audit.
  • It also includes a critical evaluation of the accounting system and internal control.
  • An auditor's duty is to verify that financial statements are accurate and to report any errors.

The investigation, on the other hand, involves a focused, systematic, and critical examination of company records in order to achieve a specific goal.

An investigation is a structured and thorough examination of a business' books of accounts and transaction records, conducted to uncover a truth or establish factual facts using evidence. The most popular methods of investigation in this area are observation, search, and interrogation.

The investigation is usually carried out by an expert team to prove the facts and in accordance with business requirements.

What is the difference between audit and investigation?

Audit and investigation are fundamentally different in that they serve a specific purpose.

When a lapse has occurred, an investigation is done. It is important to identify the source and the person responsible. An audit is performed to identify any financial records that may have been missing. This is a process to verify that the accounts are maintained in accordance with all requirements and identify any lapses. An investigation is conducted to determine the cause of a specific lapse. Auditing is used to find any discrepancy or lapse.

The following are other points that distinguish an audit from an investigation:

Audit and investigation are intended to achieve a single objective

An audit's primary purpose is to verify the financial situation as reported by the balance sheet or profit and loss accounts of a company. The audit verifies that the financial statements present a fair and accurate picture of the company's affairs. An audit's incidental goal of detecting frauds and errors is not the primary objective. Auditors should be alert to the possibility of errors or fraud in the accounts as they could lead to financial misstatement.

The other side of the coin is that an investigation's purpose is to determine a specific fact for a specific purpose. This varies from assignment to assignment. An investigation might be conducted on behalf of an incoming partnership partner in order to examine an existing partnership company. In such cases, the objective might be to determine whether the terms offered by the proposed partner are reasonable in light of the nature of the business and capital distribution records of existing partners.

Main differences between auditing and investigation in points

  1. Auditing involves the examination of documents, books, and records; the investigation is an in-depth examination of Audit results to determine a certain truth.
  2. Auditing is performed by accountants, either external or internal auditors. Investigators or experts are also hired to investigate because it involves more complex methodologies.
  3. Auditing is mandatory in any organization with a board of trustees. An investigation can only be conducted indiscretion if there are unusual financial activities.
  4. Contrary to Auditing, which has a narrow focus and limited scope of action, investigative auditing can cover a wider range of topics and departments.
  5. An audit may be performed while an investigation can be done at any moment.

Frequently Asked Questions (FAQs) about Auditing and Investigation

Here in this section, we will discuss some of the frequently asked questions by viewers. Hope this helps you as you go through it.

What are the goals of an investigation?

A probe is conducted in order to prove or establish a fact.

An investigation's main goals are

  1. To locate an error in the books of accounts
  2. To prove a particular fact
  3. To discover the truth
  4. To distinguish fact from fiction
  5. To determine the reasons behind loss in a company

What is the difference between a tax audit and an investigation?

There is one major difference between a Tax Audit and a Tax Investigation:

  1. Tax audit - All records, books, documents and accounts are reviewed to verify that the correct income and tax are reported.
  2. Tax investigation – Usually carried out by surprise. Only specific documents, books and records are checked to make sure that the taxpayer isn't trying to avoid tax using any unfair means.

What are the key principles of auditing?

Auditing is based on the following principles:

  1. Integrity
  2. Secrecy
  3. Audit documents
  4. Plan
  5. Others do the work
  6. Internal Controls and Accounting Systems
  7. Audit evidence
  8. Audit reporting

What are the six methods for investigating?

Six methods of investigation are available:

  1. Physical surveillance
  2. Electronic surveillance
  3. Forensic analysis
  4. Audit and research
  5. Interview and interrogation

What does internal audit mean?

Internal audit is the audit of a company's internal processes to determine if they are effective in controlling risk and managing its governance. This helps improve the performance of an organization by identifying internal flaws within the system. Companies hire internal auditors to perform audits within their departments. The companies hire internal auditors to conduct independent audits and provide objective reports.

What does cost audit mean?

Cost audit is the process of verifying an organization's cost records to verify their accuracy and ensure that they are in line with cost accounting principles and procedures.

Conclusion

So now we came to the conclusion. Auditing is an annual activity in most organizations and companies to maintain trust, review company goals and view and improve processes. An auditor can be either an internal auditor working in the same company as the audit or an external auditor.

An investigation, on the other hand, is a discretionary step that can be requested in certain circumstances. The investigation is usually conducted by an outside expert or investigator and has no association with the company. This activity is designed to resolve any financial discrepancies, including company resources.

References

  1. https://www.collinsdictionary.com/dictionary/english/investigation
  2. https://finlawportal.com/difference-between-audit-and-investigation/

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