Auditing is systematic examination of books and records of an organisation to confirm whether the prepared financial statements are giving true and fair view or not.
Systematic investigation of books and records to fulfill a specific purpose is called investigation.
- Example 1: Mr. X is a sole trader. One of his staff member has misappropriated a sum of Rs. 10000/-. Mr. A is an experienced chartered accountant he is requested by it’s to conduct investigation for the purpose of finding out the thief. Here purpose is catching the thief.
- Example 2: A, B and C partners in ABC Company. They have requested Mr. B to join as partner. Mr. Z is an experienced chartered accountant and he is requested by B to conduct investigation on ABC and Company to know about profitability and financial position. So here purpose is to know about profitability, financial positions etc.
Difference between Auditing and Investigation
Audit will be conducted by the owner of the undertaking only.
Investigation may be conducted either by owner of the undertaking or by an outsider.
In case of audit, only one year transactions will be taken into consideration.
In case of investigation, it may become necessary to consider transactions belonging to many years.
In case of audit, shortcut methods like test checking, etc., can be followed.
In case of investigation, such shortcut methods will not be adopted. To provide for solutions to the problem books and records should be verified in detail, not surfacially.
Auditor is not a detective. He will not commence his work with a problem. It is a routine process. He will not suspect everybody. He is compared to a watch dog.
Investigator works like a detective. He commences his work with a problem. He can be compared to a blood hound.
Auditing is a routine process. It takes place at regular intervals of time.
Investigation is not a regular process. It takes place occasionally, whenever a problem araises.
Audit is not legal requirement in case of some undertakings like sole trading concerns, partnership firms, etc. But, it is legally required in case of certain undertakings like companies.
Investigation is not legal requirement to any undertaking.
Auditing begins where accountancy ends. Auditing is an examination of financial statement.
An investigation begins where the auditing ends.
In case of auditing the only objective is conforming whether final accounts are giving true and fair view or not. Thus auditing has a defined objective.
In case of investigation, there is no defined purpose.
In case of statutory audits, auditor should have the qualification specified by the act concerned. In case of optional audits, the question of qualification does not araise.
In case of investigation, no qualification is needed. Talent and knowledge are sufficient.
Audit is confined to financial matters only. So it is a narrow concept.
Investigation covers financial as well as non-financial matters. It is a broader concept.
priyaranjan on December 20, 2016: