INVESTIGATION:
When for a special purpose an inquiry is made into the
accounts of the business it is called investigation. In other words, we
may say that audit which is conducted for a particular object is called investigation.
Investigation involves
inquiry into facts behind the books and accounts, into the technical, financial
and the economic position of the business or organisation. Investigation
is an examination of books and records preliminary of financing or for any
specified purpose, sometimes differing in scope from the ordinary audit. Investigation
implies an examination of and record for some special purpose.
Classes of Investigation
There are many types of
Investigation, but certain main classes can be identified. Following are some
of the areas where the investigation is mostly called for:
1.
Investigation on behalf of a person or company
who wants to purchase a running business.
2.
Investigation on behalf of a person who is
interested to join as a partner in a partnership firm.
3.
Investigation on behalf of a person who wants to
lend money to a business or interested to know its financial position.
4.
Investigation on behalf of the owner/shareholder
of the business who suspects a fraud.
5.
Investigation on behalf of the tax authority for
assessing actual tax liability.
Difference between Audit and Investigation
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Basis
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Audit
|
Investigation
|
|
Legal binding
|
Audit of annual financial statements is compulsory
under the Companies Ordinance, 1984.
|
Investigation is not compulsory under Companies
Ordinance but voluntary depending upon necessity.
|
|
Objective
|
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
|
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 used
|
Audit is not carried out of audited financial
statements.
|
Investigation may be conducted even though the
accounts have been audited.
|
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Extent of work
|
Audit is normally conducted on test verification
basis.
|
Investigation is a thorough examination of books of
accounts.
|
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Reporting Party
|
Audit report is addressed to shareholders (or
proprietors or partners).
|
Investigation report is addressed to the party on
whose instruction investigation was conducted.
|
|
Adjustment in net profit
|
In case of audit net profit disclosed by audited
accounts is final without further adjustments.
|
In case of investigation in order to determine real
earnings certain adjustments are always essential.
|
|
Person performing work
|
Audit is to be conducted by a chartered accountant.
|
Investigation may be undertaken even by a
non-chartered accountant.
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