Auditing and investigation may sound a bit the same; however, it differs in terms of engagement. In general, Auditing verifies the legitimacy of the information or processes. At the same time, the Investigation is a close examination of records and evidence to prove a specific fact.
While both were considered as part of the organization’s activities to ensure that a higher standard of procedure or processes are met, an investigation is infrequent. Investigative auditing is only ruled out depending on the Audit results, especially when some cases proved to be suspicious of fraudulent activities.
Auditing vs Investigation
The difference between Auditing and Investigation is that auditing is examining and reporting on books of accounts of a company while the investigation is a process of knowing a particular fact, truth or incident. Auditing requires general inspection whereas investigation requires focus and in-depth examination. Auditing is conducted annually but the investigation is conducted according to the requirement of the client.
They also differ in terms of people involved in carrying out the Audit and Investigation. Auditing requires only chartered auditors while investigation requires people with expertise both on investigation and accounting fields.
An Auditor is a person authorized to verify or review the accuracy of financial records while an investigator carries out an investigation or a formal inquiry.
Comparison Table Between Auditing and Investigation
|Parameter of Comparison||Auditing||Investigation|
|Definition||Is an examination or inspection of records, processes and activities to ensure compliance and integrity.||An extensive investigation to prove a particular fact.|
|Depth||General examination.||Critical and extensive.|
|Purpose||To build and maintain trust within an entity or group, prevents fraudulent activities and ensuring high standards and processes is always upheld.||This is only conducted when there is a potential dishonesty on a certain fact.|
|Nature of Report||General||Confidential|
|Performing entities||Internal or External Auditor/Accountant||Experts|
What is Auditing?
An Auditing or Audit is an inspection or examination of processes, activities, and records to ensure compliance or requirements.
Most Audit we’ve known refers to financial auditing, wherein a series of accounts or business books, documents, or records inspected to determine if they’re accurate and following the rules and laws.
Auditing is required to help build trust and confidence within a company or onto a specific entity that requires public trust. For companies, an internal audit takes place at least annually to ensure fraud prevention. There are at least nine (9) different types of Audit:
- Internal Audit – takes place within a company, meaning, the Auditor is also working under the same community. Most businesses use the internal Audit to check the business’s finances and evaluate operation processes to ensure compliance.
- External Audit – is being conducted by a third party entity that is not connected to the company or a person being audited. Most common external Auditors are someone from an independent accounting firm, the IRS, or from a tax agency.
- Financial Audit – one of the most common types of Audits. An external Auditor is commonly hired to conduct a financial audit in a company to ensure the accuracy of business financial records and statements. An auditor is inspecting everything connected to financial matters, may it be business transactions, creditor, or investors.
- Operational Audit – has the same goal as Internal Audit. Operational Audit analyzes the company’s goals, processes, procedures, and results. Auditors may be both internal and external.
- Compliance Audit – refers to the compliant to specific business processes and rules against the external laws.
- Payroll Audit – is an internal type of Audit conducted by an Auditor to ensure payroll accuracy. Auditing involves employee’s wages, taxes, benefit deductions, employee information, and withholding.
- IRS Tax Audit – is conducted to ensure the accuracy of the filed tax returns. Making sure that there is no discrepancy or that the company did not overpay or underpay taxes.
- Information System Audit – refers to an Audit for the software and IT companies.
- Pay Audit – refers to the identification of pay discrepancies within the employees.
What is Investigation?
An investigation refers to an action of examination or research to find out something. An Audit investigation, however, refers to the review of accounts, financial books, or financial procedures to discover irregularities and follow the movement of assets and funds in an organization.
These cases are called an investigative Auditing. It is an area of expertise dealing with the qualification and prevention of potential fraud, fund embezzlement, and mismanagement, about financial and operational activities. An investigation as such uses almost all types of methods to test suspected discrepancies of company resources.
Unlike Audit, which is imperative, the investigative audit is discretionary. Often, it is conducted when there is a potential financial discrepancy, illegal use of company funds and embezzlement involved.
Investigative Auditing covers the examination for the following:
- Financial and operational processes within an organization.
- Reinforcement control and preventive mechanisms.
- Audit tests for internal control systems and identifying financial gaps.
- Accounting and taxation dues, mergers, acquisitions, investments and other business activities.
Main Differences Between Auditing and Investigation
- While Auditing is an examination of documents, books, records, and processes; Investigation is a more extensive examination of the Audit results to establish a more certain fact.
- Internal or external auditors or accountants from an accounting firm conducts Auditing. At the same time, experts or investigators were hired for investigation as it requires more extensive methodologies.
- Auditing is mandatory, especially in an organization that consists of a board of trustees. At the same time, an investigation is only conducted indiscretion if unusual activities involving financial resources are not transparent.
- Unlike Auditing that has a focus and limited scope, investigative auditing may have a broader range and department to cover.
- Auditing may be scheduled while an investigation can be surprisingly done at any time.
Frequently Asked Questions (FAQ) About Auditing and Investigation
What are the objectives of an investigation?
An investigation is conducted to prove a particular fact or to establish a truth.
The main objectives of an investigation are:
- To find an error in the books of accounts
- To prove a specific fact
- To find the truth
- To differentiate fact from fiction
- To find the causes behind loss in a company
What is the difference between a tax audit and tax investigation?
The major difference between a tax audit and a tax investigation is that:
- Tax audit – All the account books, documents, and records are checked to ensure that correct tax and income are reported by the taxpayer.
- Tax investigation – Generally carried on by surprise and only specific documents, books, and records are critically checked to ensure that the taxpayer is not trying to evade tax by any unfair means.
What are the main principles of auditing?
The main principles of auditing are:
- Audit documents
- Work is done by others
- Internal Controls and Accounting Systems
- Audit evidence
- Audit reporting
What are the six methods of investigation?
There are six methods of investigation namely:
- Physical surveillance
- Electronic surveillance
- Forensic analysis
- Research and audit
- Interview and interrogation
What do you mean by internal audit?
Internal audit is the process of auditing activity done by a company to find out if all its processes like risk management, control and governance are working well or not. It helps to improve an organization’s performance by finding out internal flaws in the system.
Internal auditors are hired by the companies to conduct internal audits in their different departments. These internal auditors act independently and produce unbiased audit reports for the organization.
What do you mean by cost audit?
Cost audit can be defined as the verification of an organization’s cost accounts to confirm the accuracy of the cost accounts reports and to make sure that these cost accounts are following the cost accounting principles, procedures, objectives, and plans as set by their respective organizations.
Auditing is an activity that is done every year in most companies or organizations to maintain trust, check company goals and views and enhance processes. An Auditor may be an internal auditor who is employed on the same company or organization that needs an audit or an external auditor.
On the other hand, an investigation is a discretionary action that may be implored due to circumstances that have doubt.
It is conducted by an investigator or an expert usually from an outside firm and has no connection to the company.
The main goal of this activity is to clear any discrepancies about financial matters, company resources and such.
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