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Difference between audit and investigation with table

We explain the difference between audit and investigation with table. Audit and investigation may look a bit the same; however, it differs in terms of participation. In general, an Audit verifies the legitimacy of the information or processes. At the same time, the Investigation is a close examination of the records and evidence to prove a specific fact.

While both were considered part of the organization’s activities to ensure that a higher standard of procedures or processes is adhered to, an investigation is rare. The investigative audit is only dismissed based on audit results, especially when some cases were suspected of fraudulent activity.

Audit vs Investigation

The difference between audit and investigation is that the audit consists of examining and reporting on the books of accounts of a company, while the investigation is a process to know a fact, a truth, or a particular incident.

The audit requires a general inspection, while the investigation requires focus and an in-depth examination. The audit is carried out annually but the investigation is carried out according to the client’s requirements.

They also differ in terms of the people involved in conducting the Audit and Investigation. The audit requires only authorized auditors, while the investigation requires people with experience in both the investigation and accounting fields.

An auditor is a person authorized to verify or review the accuracy of financial records while an investigator conducts an investigation or a formal inquiry.

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What is the audit?

An audit or audit is an inspection or examination of processes, activities, and records to ensure compliance or requirements.

Most of the audits that we are aware of referring to financial auditing, in which a series of business accounts or books, documents, or records are inspected to determine whether they are accurate and follow the rules and laws.

The audit is necessary to help build trust within a company or a specific entity that requires public trust. For companies, an internal audit is carried out at least once a year to ensure fraud prevention. There are at least nine (9) different types of audit:

  1. Internal audit – takes place within a company, that is, the Auditor also works in the same community. Most companies use internal auditing to verify company finances and evaluate operational processes to ensure compliance.
  2. External audit – is being performed by a third-party entity that is not related to the company or a person being audited. The most common external auditors are people from an independent accounting firm, the IRS, or a tax agency.
  3. Financial audit – one of the most common types of audits. Typically, an external auditor is engaged to perform a financial audit on a company to ensure the accuracy of business financial records and statements. An auditor is inspecting everything related to financial matters, be it business transactions, creditors, or investors.
  4. Operational audit – has the same objective as Internal Audit. The Operational Audit analyzes the objectives, processes, procedures, and results of the company. Auditors can be both internal and external.
  5. Compliance audit – refers to compliance with specific business processes and rules against external laws.
  6. Payroll Audit – is a type of internal audit performed by an auditor to ensure the accuracy of the payroll. The audit involves wages, taxes, benefit deductions, employee information, and employee withholdings.
  7. IRS Tax Audit – performed to ensure the accuracy of filed tax returns. Make sure there are no discrepancies or that the company did not overpay or underpay taxes.
  8. Information system audit – refers to an audit for software and IT companies.
  9. Pay audit – refers to the identification of salary discrepancies within employees.

What is research?

An investigation refers to an action of examination or investigation to find out something. However, an audit investigation refers to the review of accounts, financial books, or financial procedures to discover irregularities and to follow the movement of assets and funds in an organization.

These cases are called Investigative Audits. It is an area of ​​specialization that deals with the qualification and prevention of possible fraud, embezzlement, and mismanagement of financial and operational activities. Such an investigation uses almost all types of methods to prove suspected discrepancies in the company’s resources.

Unlike the audit, which is mandatory, the investigative audit is discretionary. It is often carried out when there is a potential financial discrepancy, illegal use of company funds, and misappropriation of funds.

The investigative audit covers the examination of the following:

  1. Financial and operational processes within an organization.
  2. Reinforcement control and preventive mechanisms.
  3. Audit tests for internal control systems and identification of financial gaps.
  4. Accounting and tax fees, mergers, acquisitions, investments, and other business activities.

Comparison Audit Research Parameter

Difference between audit and investigation in Tabular Form

Definition It is an examination or inspection of records, processes, and activities to ensure compliance and integrity. Extensive research to prove a particular fact.
Depth General examination. Critical and extensive.
Purpose To build and maintain trust within an entity or group, avoid fraudulent activities and ensure that high standards and processes are always upheld. This is only carried out when there is possible dishonesty in a certain fact.
Nature of the report general Confidential
Mandatory Yes Not
Executing entities Internal or External Auditor / Accountant Experts

Key differences between audit and investigation

  1. While the audit is an examination of documents, books, records, and processes; The investigation is a more extensive examination of the audit results to establish a more certain fact.
  2. The internal or external auditors or accountants of an accounting firm perform audits. At the same time, experts or researchers were hired for the research, as it requires more extensive methodologies.
  3. Auditing is mandatory, especially in an organization consisting of a board of directors. At the same time, an indiscreet investigation is only carried out if unusual activities involving financial resources are not transparent.
  4. Unlike the audit which has a limited focus and scope, the investigative audit may have a broader range and a department to cover.
  5. The audit can be scheduled while surprisingly an investigation can be carried out at any time.

Audit and Investigation Frequently Asked Questions (FAQ)

What are the objectives of an investigation?

An investigation is conducted to prove a particular fact or establish a truth.

The main objectives of an investigation are:

  1. To find an error in the account books.
  2. To prove a specific fact
  3. To find the truth
  4. To differentiate fact from fiction
  5. Finding the causes of losses in a company.

What is the difference between a tax audit and a tax investigation?

The main difference between a tax audit and a tax investigation is that:

  1. Tax Audit – All ledgers, documents, and records are verified to ensure that the taxpayer is reporting the correct taxes and income.
  2. Tax investigation – Usually carried out by surprise and only specific documents, books, and records are critically checked to ensure that the taxpayer is not trying to evade taxes by any unfair means.

What are the fundamental principles of auditing?

The fundamental principles of auditing are:

  1. Integrity
  2. Secret
  3. Audit documents
  4. Planning
  5. The work is done by others
  6. Internal controls and accounting systems
  7. Audit evidence
  8. Audit reports

What are the six research methods?

There are six research methods, namely:

  1. Physical surveillance
  2. Electronic surveillance
  3. Forensic analysis
  4. Clandestine
  5. Investigation and audit
  6. Interview and questioning

What do you mean by internal audit?

Internal audit is the process of auditing the activity that a company performs to find out if all its processes, such as risk management, control, and governance, are working well or not. It helps improve the performance of an organization by discovering internal failures in the system.

Internal auditors are hired by companies to carry out internal audits in their different departments. These internal auditors act independently and produce impartial audit reports for the organization.

What do you mean by cost auditing?

Cost auditing can be defined as the verification of an organization’s cost accounts to confirm the accuracy of cost account reporting and to ensure that these cost accounts follow accounting principles, procedures, objectives, and plans. of costs established by their respective organizations.

Final Thought

The audit is an activity that is carried out every year in most companies or organizations to maintain trust, verify the objectives and opinions of the company and improve processes. An auditor can be an internal auditor who works in the same company or organization that needs an audit or an external auditor.

On the other hand, an investigation is a discretionary action that can be implored by circumstances that have doubts.

It is carried out by a researcher or an expert, usually from an outside company, and has no connection to the company.

The main objective of this activity is to clarify any discrepancies on financial matters, company resources, and others.

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