Investigation is the act of detail examination of activities so as to achieve certain objectives. Specially, investigation is made in suspected places. It finds out the nature and reasons of suspected areas but auditing is the act of examining books of accounts so as to prove true and fairness of operating results and financial position of a business. Following differences can be seen between auditing and investigation:
1. Purpose An audit is carried out for the purpose of ascertaining whether or not the balance sheet and profit and loss account show true and fair view of the state of company’s affairs and its profit or loss. But an investigation aims at establishing a fact or is carried out for some particular purpose i.e. to know the financial position of the concern or the earning capacity of the concern etc.
2. On Behalf An audit is carried out on behalf of the proprietor of the business, while an investigation may be conducted on behalf proprietors when they suspect any fraud in their business or on behalf of outside parties who wish to lend money or intend to purchase business or at the instance of the government on the request of the shareholders.
3. Scope An audit includes only an examination of the accounts of a business whereas an investigation covers not only an examination of the accounts but also an inquiry into other relevant matters connected with the purpose for which it is undertaken.
4. Use Of Techniques An audit is usually a test checking but an investigation is a much more thorough examination of the books of accounts. It goes into the depth of the problem and keeps on looking for far more definite evidence to arrive at a conclusion that it can firmly substantiate. Further, investigation may be conducted even after the audit of the accounts.
5. Period An audit is related to only a year or six months while investigation may cover several years.
6. Statutory Obligation In the case of joint stock companies, audit is compulsory under law while there is no such statutory obligation with regard to investigation.
7. Examination Use Of Policies In audit, an auditor has to see whether the methods of valuation and other accounting policies have been consistently followed or not and he has to ensure that all disclosures have been properly made in the financial statements, while an investigation is not at all bound by accounting conventions, policies and disclosure requirements.