Auditing and investigation are two terms often used
interchangeably. However, these two terms refer to different processes and have
different objectives. Auditing is a systematic process of examining and
verifying financial records, while investigation is a process of determining
the facts and circumstances surrounding an issue or event. This blog will
discuss the differences between auditing and investigation, their objectives,
and the procedures involved in each process.
What is Auditing?
Auditing is a process of examining and verifying the
financial records of an organization to ensure that they are accurate and
complete. The primary objective of auditing is to provide an independent opinion
on the financial statements of an organization. The auditor examines the
financial records, including financial statements, bank statements, invoices,
receipts, and other documents to ensure that the financial information
presented in the statements is accurate.
The audit report can either be unqualified or qualified. An
unqualified opinion means that the auditor has reviewed the financial
statements and has found them to be accurate and complete. A qualified opinion
means that the auditor has found some issues with the financial statements, but
they are not material enough to affect the overall opinion of the financial
statements.
The rights and duties of an auditor
As per the Companies Act, 2013, auditors have several powers
and duties that they are required to perform during the audit of a company.
Some of the key powers and duties of auditors under the Act are:
Powers:
1) Access to books and records: Auditors have the power to
access all the books and records of the company, including financial statements,
accounts, vouchers, invoices, receipts, and other documents.
2) Verification of assets and liabilities: Auditors can
verify the assets and liabilities of the company by conducting physical
inspections and obtaining confirmations from third parties.
3) Summoning of persons: Auditors can summon any person who
they believe has information relevant to the audit and can require them to
provide necessary explanations and documents.
4) Seek information and explanations: Auditors can seek
information and explanations from the company's directors, officers, and
employees as required to complete the audit.
5) Investigate frauds and misrepresentations: Auditors have
the power to investigate any fraud, misappropriation, or misrepresentation that
may have occurred in the company.
Duties:
1) Express an opinion on financial statements: Auditors are
required to express an opinion on the financial statements of the company based
on their audit.
2) Reporting on internal control: Auditors must report on
the company's internal control systems and highlight any deficiencies or
weaknesses that they identify.
3) Reporting on frauds: Auditors are required to report any
frauds or suspected frauds that they discover during the course of their audit.
4) Compliance with accounting standards: Auditors must
ensure that the company has complied with the accounting standards specified by
the Institute of Chartered Accountants of India (ICAI).
5) Reporting on related party transactions: Auditors are
required to report any related party transactions that they identify during the
audit, including any transactions that may have been conducted at non-arm's
length.
What is Investigation?
An investigation is a process of reviewing and
examining its financial records, transactions, and reports to determine their
accuracy, completeness, and compliance with accounting standards and legal
requirements. The investigation may be conducted by internal auditors or
external auditors hired by the company or organization, or by regulatory
authorities such as the Securities and Exchange Commission (SEC) or tax
authorities.
The purpose of such an investigation is to identify any
irregularities or discrepancies in the financial statements or other financial
information of the company or organization, such as fraudulent activities,
mismanagement, or noncompliance with laws and regulations. The investigation
may involve reviewing bank statements, invoices, receipts, contracts, and other
financial documents, as well as conducting interviews with employees and stakeholders.
Powers and procedure of an investigation
Section 217 of the Companies Act, 2013 deals with the powers
and procedures of an investigation. As per the section, the following powers
are available to the investigating officer:
- The power to require any person to produce any document or
thing which is in his possession or under his control.
- The power to search and seize any books of account,
registers, other documents, and electronic records.
- The power to conduct an inspection of books and registers
maintained by a company.
- The power to examine any person who is or was an officer
or employee of the company.
- The power to examine any person who has or has had
business dealings with the company.
- The power to examine any person who is or was an auditor,
legal advisor, or consultant of the company.
- The power to inspect or survey any property, movable or
immovable, of the company.
The procedure for conducting an investigation under
Section 217 of the Companies Act, 2013 is as follows:
- The Registrar, inspector or any officer authorized by the
Central Government may conduct an investigation into the affairs of a company.
- The investigating officer must give a notice to the
company about the investigation, specifying the nature and scope of the
investigation.
- The investigating officer may examine any person who is
reasonably believed to be acquainted with the facts and circumstances of the
case.
- The investigating officer may also require the company to
furnish any information or explanation necessary for the investigation.
- The investigating officer may submit a report to the
Central Government on the completion of the investigation.
- The Central Government may take necessary action based on
the report submitted by the investigating officer.
Explain the difference between Auditing and Investigation
Key Differences between Auditing and Investigation are as
follows:
1) Purpose and Objective: The primary objective of an audit
is to provide an independent and objective opinion on the financial statements
of an organization, while the objective of an investigation is to uncover
fraud, embezzlement, or other illegal activities.
2) Scope: Auditing focuses on the entire financial reporting
process, including the internal controls, policies, and procedures that govern
financial reporting. Investigations are more narrowly focused and are limited
to specific areas of concern.
3) Independence: Auditors are independent and unbiased, and
they have no affiliation with the organization being audited. Investigators may
be internal or external to the organization and may have a vested interest in
the outcome of the investigation.
4) Timing: Auditing is usually conducted annually, while
investigations are conducted when there is a suspicion of wrongdoing or when
there are allegations of financial impropriety.
Conclusion
Auditing and Investigation are both important processes in
the field of accounting, but they serve different purposes and require
different skills and methods. Auditing is a broad-based review of a company's
financial information, while investigation is a more targeted inquiry into
specific transactions or activities. Both processes are necessary to ensure the
integrity of financial reporting and to protect the interests of shareholders
and other stakeholders.
