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Difference Between Auditing and Investigation

Difference Between Auditing and Investigation

Auditing and investigation may seem similar but they are actually very different. The difference between auditing and investigation lays in the fact that an audit looks at what has been done, while an investigation focuses on what may have happened. Audits are generally performed to assess the quality of a product or service (and can be internal or external). An investigator’s job is to find out if something illegal occurred.

Auditing Vs. Investigation

There are several differences between auditing and investigation. The first difference is that audits look at what has been done while investigations focus on what may have happened. Audits are generally performed to assess the quality of a product or service (and can be internal or external). The investigation’s job is to find out if something illegal occurred.

Another major distinction between auditing and investigations is the purpose for which they are conducted. Audits are generally carried out to ensure that an organization’s financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company. Investigations, on the other side, may be conducted for a variety of reasons such as legal proceedings, insurance claims, or workplace accidents.

Lastly, auditing is an objective process while investigations may be subjective. Auditors review the evidence and reach conclusions based on that evidence. Investigators, however, may have a preconceived notion of what occurred and may look for evidence to support that theory rather than looking at all the available information objectively.

What is an Investigation?

The investigation is a process of searching and analyzing the information in order to establish the truth. The investigator collects all available data, determines what happened and why, and presents findings. An investigation may be conducted for different purposes: legal proceedings, insurance claims, workplace accidents, etc.

What is Auditing?

Auditing is an independent examination of an organization’s management, its financial statements, or operational activities to verify that everything is in order and complies with laws, regulations, or prescribed standards. Auditing can be performed by both internal staff auditors as well as external “independent” auditors.

The details are shown below:

  • Internal audit – conducted by employees of a company or its branch.
  • External audit – conducted by auditors from outside the organization to verify that business processes comply with organizational policies and standards, as well as applicable laws and regulations.

Internal Audit: Internal Audits are generally performed by staff members who have an understanding of your particular industry or type of organization. They are conducted with the objective of evaluating the adequacy of internal control systems and identifying any areas in which improvements can be made.

External Audit: External Audits are generally carried out by qualified accountants who are not affiliated with the company being audited. The main objectives of an external audit are to assess whether financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the company; to assess the effectiveness of internal control over financial reporting; and to express an opinion on whether the financial statements are in compliance with applicable accounting standards.

Difference Between Auditing and Investigation

  • Audits look at what has been done while investigations focus on what may have happened.
  • Auditing is an independent examination of the internal controls and financial statements to verify that everything is in order and complies with laws, regulations, or prescribed standards. The investigation’s job is to find out if something illegal occurred.
  • Audits are generally performed to ensure that the financial statements are presented fairly, in all material respects, the financial position, results of operations, and cash flows of a company. Investigations may be conducted for a variety of reasons such as legal proceedings or workplace accidents.
  • Lastly, auditing is an objective process while investigations may be subjective. Auditors review the evidence and reach conclusions based on that evidence. Investigators, however, may have a preconceived notion of what occurred and look for evidence to support that theory rather than looking at all the available information objectively.
  • Audits are generally carried out by qualified accountants who are not affiliated with the company being audited. The main objectives of an external audit are to assess whether financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the company; to assess the effectiveness of internal control over financial reporting; and to express an opinion on whether the financial statements are in compliance with applicable accounting standards. Investigations may be conducted for a variety of reasons such as legal proceedings or workplace accidents. The main objectives of an investigation are to find out if something illegal occurred and, if so, to determine the parties involved and the extent of the damage.
  • Auditing is a regulated profession while investigations are not. Auditors must meet certain requirements in order to be able to audit a company, including passing an examination administered by one or more of the recognized accounting bodies. There are no specific requirements for investigators, although many investigators have law enforcement or investigative background.

Conclusion

Auditing and investigations may sound similar but they are actually very different. Auditors review the evidence and reach conclusions based on that evidence, while investigators may have a preconceived notion of what occurred and look for evidence to support their theory rather than looking at all the available information objectively. Lastly, auditing is an objective process while investigations may be subjective.