B Com Exam > B Com Notes > Auditing and Secretarial Practice > Intro to Investigation, Audit & Investigation Distinguished - Auditing & Secretarial Practice
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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:
- Proposed purchase of business.
- Proposed sale of business.
- Reasons for low profitability.
- Cause of high employee turnover.
- Reliability of business data.
- Proposed investment in particular securities.
- Suspected fraud.
- Joining in existing partnership business.
- Borrowing funds.
- Lending funds.
- Proposed purchase of controlling shares in a company.
- Suspected misfeasance against directors.
- Detection of undisclosed income for tax purposes.
- Suspected misappropriation by trustees.
Audit and Investigation Distinguished
- 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.
- 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.
- Period covered: Audit is conducted on annual basis. Investigation may be conducted for several years at a time, say three years.
- 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.
- Documents: Audit is not carried out of audited financial statements. Investigation may be conducted even though the accounts have been audited.
- Extent of work: Audit is normally conducted on test verification basis. Investigation is a thorough examination of books of accounts.
- 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.
- 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.
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FAQs on Intro to Investigation, Audit & Investigation Distinguished - Auditing & Secretarial Practice - Auditing and Secretarial Practice - B Com
| 1. What is the difference between investigation and audit? |  |
Ans. Investigation and audit are both processes used to gather and evaluate information, but they have different objectives. An investigation is typically conducted to uncover wrongdoing, such as fraud or misconduct, and identify the responsible parties. On the other hand, an audit is a systematic review of financial records and processes to ensure accuracy, compliance, and reliability. While both involve examining documents and interviewing individuals, investigations focus on uncovering specific incidents, while audits focus on ensuring overall financial integrity.
| 2. What is the role of secretarial practice in auditing? | |
Ans. Secretarial practice plays a crucial role in auditing by providing administrative support and ensuring compliance with legal and regulatory requirements. It involves maintaining corporate records, preparing and filing necessary documents, and assisting in corporate governance. In the context of auditing, secretarial practice helps auditors access relevant information, such as meeting minutes, company resolutions, and shareholder records, which are essential for evaluating internal controls and verifying compliance with corporate laws.
| 3. What are the key skills required for an investigator? | |
Ans. Being an effective investigator requires a range of skills. Some of the key skills include:
- Analytical skills: Investigators need to be able to analyze complex information, identify patterns, and draw conclusions based on evidence.
- Interviewing skills: Conducting interviews is a crucial part of investigations, and investigators need to be skilled in eliciting information, probing for details, and evaluating credibility.
- Attention to detail: Investigative work involves examining vast amounts of information and identifying inconsistencies or irregularities that may indicate wrongdoing.
- Communication skills: Investigators must be able to communicate effectively, both in writing and verbally, to present findings, gather information, and collaborate with others involved in the investigation.
- Ethical conduct: Investigators must adhere to ethical standards, maintain confidentiality, and ensure fairness and objectivity throughout the investigation process.
| 4. What is the importance of auditing in business? | |
Ans. Auditing plays a crucial role in business for several reasons:
- Ensuring financial accuracy: Auditing helps verify the accuracy and reliability of financial records, ensuring that they reflect the true financial position of the business. This is important for stakeholders, such as investors, lenders, and shareholders, to make informed decisions.
- Detecting fraud and errors: Auditors are trained to identify fraudulent activities and errors in financial reporting, helping prevent financial losses and ensuring compliance with laws and regulations.
- Evaluating internal controls: Auditing involves assessing the effectiveness of internal controls within an organization, identifying weaknesses or gaps that could lead to financial mismanagement or fraud.
- Enhancing credibility: By conducting regular audits, businesses demonstrate their commitment to transparency and accountability, enhancing their credibility and reputation among stakeholders.
- Facilitating compliance: Auditing helps ensure compliance with legal and regulatory requirements, reducing the risk of penalties, fines, and legal consequences.
| 5. How can organizations benefit from conducting investigations? | |
Ans. Organizations can benefit from conducting investigations in several ways:
- Identifying and addressing wrongdoing: Investigations help uncover instances of fraud, misconduct, or other wrongdoing within the organization. By addressing these issues promptly, organizations can prevent further damage and maintain their integrity.
- Improving internal controls: Investigations often reveal weaknesses or gaps in internal controls, allowing organizations to implement necessary improvements to prevent future incidents.
- Enhancing organizational culture: Conducting investigations sends a strong message that unethical behavior will not be tolerated. This can contribute to creating a culture of integrity and ethical conduct within the organization.
- Protecting reputation: By promptly addressing and resolving issues discovered through investigations, organizations can protect their reputation and maintain the trust of stakeholders.
- Reducing financial losses: Investigations can help recover misappropriated funds or assets, minimizing financial losses for the organization.
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