Intro to Investigation, Audit & Investigation Distinguished - Auditing & Secretarial Practice | Auditing and Secretarial Practice - B Com PDF Download

Investigation

Investigation is an exercise which is carried out with a specific objective. The investigation means in-depth analysis of books of accounts, transaction, and event. Investigation exercise is voluntary in nature and used extensively by Internal and management auditors.

It is neither accounting nor auditing but a special audit limited or extended scope keeping in view the object behind it. It is intensive and comprehensive than auditing. Dicksee has defined it thus: ”An investigation is an examination of accounting records for a specific purpose“.

Scope of investigation

No general principle can be laid down with regard to the scope of every type of investigation. Scope of investigation, in each case, would be limited to the period or area to be covered by the investigator.

Reasons for carrying out investigation

The real objective of conducting an investigation by an auditor on behalf of his client is to provide him the desired information in the form of a report about the matter specified. Normally the objective of investigation is to collect, analyze and evaluate facts in respect of desired field of activity with a view on some special purpose as determined by the person on whose behalf the investigation is undertaken.

The common reasons of getting the investigation done are listed below:

1. Proposed purchase of business.
2. Proposed sale of business.
3. Reasons for low profitability.
4. Cause of high employee turnover.
5. Reliability of business data.
6. Proposed investment in particular securities.
7. Suspected fraud.
8. Joining in existing partnership business.
9. Borrowing funds.
10. Lending funds.
11. Proposed purchase of controlling shares in a company.
12. Suspected misfeasance against directors.
13. Detection of undisclosed income for tax purposes.
14. Suspected misappropriation by trustees.

Audit and Investigation Distinguished

1. Legal binding: Audit of annual financial statements of a company is compulsory under the Companies Act, 1956. However, Investigation is not compulsory under the Companies act, 1956 but voluntary depending upon necessity.
2. Object in view: Audit is conducted to ascertain whether the financial statements show a true and fair view. Investigation is conducted with a particular object in view, viz to know financial position, earning capacity, prove fraud, invest capital, etc.
3. Period covered: Audit is conducted on annual basis. Investigation may be conducted for several years at a time, say three years.
4. Parties for whom conducted: Audit is conducted on behalf of shareholders (or proprietor, or partners). Investigation is usually conducted on behalf of outsiders like prospective buyers, investors, lenders, etc.
5. Documents: Audit is not carried out of audited financial statements. Investigation may be conducted even though the accounts have been audited.
6. Extent of work: Audit is normally conducted on test verification basis. Investigation is a thorough examination of books of accounts.
7. Report: Audit report of a company is addressed to shareholders (or proprietors or partners). Investigation report is addressed to the party on whose instruction investigation was conducted.
8. Person performing work: Audit is to be conducted by a person having prescribed qualification i.e. Chartered accountant, Cost accountant. No statutory qualification is prescribed for Investigation. It may be undertaken by any one.