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 part of the organization’s activities to ensure that a higher standard of procedure or processes is met, an investigation is infrequent. Investigative auditing is only ruled out depending on the Audit results, especially when some cases prove suspicious of fraudulent activities.
- Auditing systematically evaluates and verifies an organization’s financial and operational systems and processes to ensure compliance with legal and regulatory requirements.
- An investigation is gathering evidence to determine the cause of an issue or problem.
- Auditing is typically conducted by an internal or external auditor, while the investigation is operated by a person or team with expertise in the relevant field.
Auditing vs Investigation
The difference between Auditing and Investigation is that auditing is examining and reporting on the books of accounts of a company. In contrast, 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 client’s requirements.
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They also differ regarding the people involved in the Audit and Investigation. Auditing requires only chartered auditors, while investigation requires people with expertise in investigation and accounting.
An Auditor is authorized to verify or review the accuracy of financial records while an investigator carries out an investigation or a formal inquiry.
|Parameter of Comparison||Auditing||Investigation|
|Definition||It 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||Building and maintaining trust within an entity or group prevents fraudulent activities and ensures high standards and processes are always upheld.||This is only conducted when there is potential dishonesty on a particular 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 are 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 a specific entity requiring 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 Audits:
- Internal Audit – occurs within a company, meaning the Auditor also works in 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 conducted by a third-party entity not connected to the company or a person being audited. The most common external Auditors are someone from an independent accounting firm, the IRS, or 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 inspects everything connected to financial matters, whether business transactions, creditors, 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 compliance with specific business processes and rules against external laws.
- Payroll Audit – an internal audit conducted by an Auditor to ensure payroll accuracy. Auditing involves employee wages, taxes, benefit deductions, employee information, and withholding.
- IRS Tax Audit – is conducted to ensure the accuracy of the filed tax returns. Ensure there is no discrepancy or that the company did not overpay or underpay taxes.
- Information System Audit – an Audit for software and IT companies.
- Pay Audit – refers to the identification of pay discrepancies among 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 reviewing accounts, financial books, or financial procedures to discover irregularities and follow the movement of assets and funds in an organization.
These cases are called investigative Auditing. It is an area of expertise dealing with the qualification and prevention of potential fraud, fund embezzlement, and mismanagement of financial and operational activities.
An investigation uses almost all methods to test suspected discrepancies in 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 identify 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 particular fact.
- Internal or external auditors or accountants from an accounting firm conduct 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 with 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, which 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.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.