Difference Between Auditing and Investigation

Investigations are used in almost every activity. Especially in business, the management has to take care that there is no fraudulent activity taking place. Nevertheless, there may be discrepancies and frauds happening in the company. To find these frauds, various methods are used such as investigations, audits, etc.

For the common man, an investigation and an audit are almost the same, but this is a false notion which most people have. There is a subtle difference that exists between these two. In this blog, we will try to understand the concept of an audit and the concept of investigation, and what is the difference lies between them.

What is Audit?

An audit or a financial audit can be defined as the inspection, examination, or verification of a system, process, project, or product. An audit is usually performed to find out the authenticity of the product. A review will also help to understand the working of a particular process and if the proper procedure is being followed or not. This examination is generally conducted by a separate third party which has no relation to the company being audited. A business organization should conduct an audit at regular intervals to keep a check on the process being followed. The audit report prepared at the end of the audit process will tell the management of the company what needs to be improved and which part of the company can be developed further. We mostly hear this term while conducting scrutiny of a business. There are various benefits of conducting an audit of a business.

What is Investigation?

An investigation is detailed scrutiny of selected activities which will help us understand the process in a better and comprehensive way. An investigation is the complete inquiry of specific accounts or records of a business. An investigation is generally used to prove a particular fact, and this makes it very crucial in accountancy, financial management, and journalism. As investigation focuses on a specific part or service of the organization, the management can find the flaws in a process by performing the proper research of the activity.

Main Differences between Audit and Investigation

There are many differences between an Audit and an investigation. The significant differences between Audit and Investigation are as follows:

Basis	Investigation	Audit
Definition	An investigation is defined as an inquiry or a detailed examination to achieve particular specific objectives	An audit can be understood as an examination, inspection, and verification of any organization, system, process, or product.
Nature	An investigation is an in-depth and detailed examination of a particular subject which can be tangible or intangible.	An audit is performed to catch hold of any deviations in the accounts or the processes.
Purpose	The purpose of an investigation depends upon the nature of the business.	The purpose of an audit is to understand the working of a company and catch hold of any deviations.
Time	An investigation has no fixed duration and depends upon the investigator.	An audit usually takes up three to six months, depending upon the size and nature of the company.
Scope	An investigation includes all the various factors which are connected to the primary purpose of the investigation.	An audit includes overseeing the accounts of the business to check for any deviation in them.
When is it conducted?	An investigation is conducted after the Audit is complete, and the audit report has been formed.	An audit forms the base for an investigation.
In charge	An investigation has no defined charge. It can be taken up by anyone in the business.	An audit is usually conducted by a chartered accountant or a chartered accountant firm
Any obligations	An investigation is further done to understand the problem in the accounts of the business	Conducting an audit is deemed mandatory, according to the law.
Ownership	An investigation is usually conducted by the owner of the business or as an undertaking by an outside third party.	An owner of the business cannot perform the Audit of the company, but it is the owner who appoints the auditor.

The difference between auditing and investigation can be in terms of their engagement. To understand better, an audit is a general overview of the examination of records to ensure that the company’s information and records are up to date, transparent, and not misinterpreted. An investigation, on the other hand, is a detailed and close examination of a particular activity to find anything unusual or to prove a certain point or fact.

Still not sure about the difference between audit and investigation? Here are some more! An audit, especially a financial audit, is a legal requirement and must be presented to the stakeholders while an investigation is not necessary to be presented. In addition, the evaluation and necessary actions for an investigation depends on the decisions of the managers. It is for this reason that audits are performed frequently while investigations are rarely or not so frequently performed. An audit should be performed once a year ideally while there is no set limit for when an investigation should be performed. The reason behind it is that an investigation is performed just to look at the circumstances of the business.

If you ask an accounting professional, you’ll get practical information about the difference between auditing and investigation. An audit services can only be performed by charted accountants or auditors. On the flip side, an investigation requires people who are professional in both the accounting and investigation fields but can be done by anyone in the organization. So, there is no necessity to hire an expert for an investigation which saves money.

As discussed earlier, an audit is an obligation of the business and must be presented to all the stakeholders of a business for greater transparency and reliability. The investigation, on the other hand, is purely confidential and not required to be leaked to the general market. It deals usually with internal affairs of the business such as an act of dishonesty on a certain fact which might include fund embezzlement, mismanagement, fraud, etc.

It should be noted that one of the key characteristics of an audit is that it cannot be performed by the organization itself. It must be performed by outside individuals or a group of auditors who are independent of the organization. This is not the case with the investigation. Since it is done usually for internal affairs and is not mandatory by law, it can be undertaken by anyone.

Audit and investigation can be inter-linked sometimes. In some situations, an investigation is performed after an audit. The audit points out the areas of suspicion in an organization after which an investigation is undertaken to further scrutinize the suspicious areas within the organization.

Conclusion

From the above analysis, we can conclude that audit and investigation are two terms that can be misunderstood. Although they may seem similar, there is a minor but considerable difference between audit and investigation. It is important to have proper knowledge about audit and investigation to avoid any mistakes in business operations and to make the most of both these processes.