Difference Between Auditing and Investigation

Auditing vs Investigation
 

A firm prepares financial statements in order to examine the current year’s financial performance and to offer a fair and true view of the firm’s financial status. Once the financial statements are prepared it is essential to evaluate their accuracy, and if needed, to conduct further investigation to identify and rectify any specific issues. Auditing and investigation are two such methodologies that provide a more accurate and true view of the firm’s financial standing. While they may sound quite similar to one another, there are a number of distinct differences between auditing and investigation. The article examines each concept in detail and explains the similarities and differences between auditing and investigation.

What is Auditing?

Auditing is the process of evaluating the accounting information presented in the financial statements of an organization with the aim of evaluating their accuracy. Auditing includes making sure that the financial reports are fairly presented, ethically prepared and are in compliance with the accepted accounting principles and standards. The auditing functions are outsourced by organizations to individual entities specialized in this type of evaluation so that the firm may obtain an unbiased view of its financial statements. An audit is made compulsory by company law, and firms are required to disclose audit documents and information fully to the public. The auditing firm usually undertakes the audit before the financial statements are presented to the general public and ensure that the data provides a true and fair representation of the firm’s financial status.

What is Investigation?

An investigation can be carried out by the owner of the business or by an outside party. Investigations are conducted to fulfill a specific purpose, such as to examine a problem or issue with a firm’s financial records, find evidence of fraud, examine financial status of the firm, evaluate future earning capacity, etc. Investigations can be carried out on behalf of the company’s owner, lenders, prospective buyers, investors, etc. The investigator appointed to carry out the investigation acts like a detective and thoroughly examines all financial information, to examine the issues in detail and resolve any problems. An investigation is usually initiated when a problem arises and, therefore, is not conducted on a regular basis. An investigation is not made compulsory by law, and the company can keep findings of the investigation private to themselves. An investigation is conducted after the audit of the financial statements is completed. An investigation may include examining financial records and reports over a number of years, and is not confined to the examination of material within a specific time period.

What is the difference between Auditing and Investigation?

Auditing and investigation both take into account a company’s financial information, financial records and business transactions. The main aim of an audit is to ensure the validity and accuracy of the financial statements and to make sure that the financial reports are true and fair, ethically prepared, and are in compliance with the accepted accounting principles and standards, thereby complying with regulatory and statutory requirements. The aim of an investigation is to fulfill a specific purpose in mind such as to examine fraud, identify issues, evaluate future earning capacity, etc.

An investigation commences after an audit is conducted and is initiated when a problem arises. Therefore, unlike audits that are conducted on a regular basis, investigations are carried out only when necessary. While audits are mandated by company law, investigations are carried out as required by the firm’s owners and stakeholders.

The output of an audit must be made public, whereas the outcome of an investigation is only to be shared by the required parties. Auditors are personnel outside the firm, who are under obligation to ensure that the information recorded represent the true picture of the firm. An investigation, on the other hand, can be initiated by anyone such as the firm’s owners, investors, lenders, etc.

Auditing focuses on financial records within a specific period of time, such as during the past financial year whereas investigations can cover a number of years. Furthermore, an investigation takes a broader scope than an audit, and in addition to examining financial records non-financial information will also be taken into account.

Summary:

Auditing vs. Investigation

• Auditing and investigation both provide a more accurate and true view of the firm’s financial standing.

• Auditing and investigation both take into account a company’s financial information, financial records, and business transactions.

• The main aim of an audit is to ensure the validity and accuracy of the financial statements and to make sure that the financial reports are true and fair, ethically prepared and are in compliance with the accepted accounting principles and standards.

• The aim of an investigation is to fulfill a specific purpose in mind such as to examine fraud, identify issues, evaluate future earning capacity, etc.

• An investigation commences after an audit is conducted and will be initiated when a problem arises.

• Audits are conducted on a regular basis, but investigations are carried out only when the need arises.

• While audits are mandated by company law, investigations are carried out as required by the firm’s owners and stakeholders.