What is investigation? How does it differ from financial audit?

Ans.

Investigation is an examination of accounting records and other information for some special purpose. For example, a company wants to take a loan from a bank. The bank manager before giving loan will like to find out-

(i) Whether his loan will be safe,

(ii) Whether the company will be able to return the loan.

(iii) Whether the company will be able to pay interest regularly.

If the bank gets satisfactory answers to the above questions, bank may give the loan to the company.

The above process of finding out the relevant information is called investigation.

According to Taylor and Perry, “Investigation involved enquiry into the facts behind the accounts i.e. into the books and documents, and also in many cases, into the technical, financial and economic position of the business or organization.”

From the above definitions it can be seen that investigation is a type of special audit.

DISTINCTION BETWEEN FINANCIAL AUDIT AND INVESTIGATION

Plan or no plan was the controversy before 1930. After 1930, everybody’s slogan is plan please. An investigation in order to be useful should be properly planned-

(1) Object, scope of Investigation and Period to be Covered- Actually speaking the starting point in an investigation is its objective. The strategy to be adopted will vary according to the objective. This is very important as it is like the destination where the investigator is to reach. The investigator cannot start the journey unless he knows his destination i.e, objective has been decided. He should ask his client whether the audited accounts presented to him should also be clearly specified. This will help in determining the true scope of enquiry.

(2) Chalking out the Programme- He should chalk out a programme taking into account the objective, scope of investigation and the period to be covered. He should pay special attention to the nature of business, accounting method adopted by his client. He should also examine the internal check system of his client. Before accepting the account he should ascertain the purpose for which the accounts were prepared. If, for example, he is investigating on behalf of a person who wants to purchase the business he should not accept the accounts if those were prepared for the purpose of the vender or seller of the business.

(3) Approach- He should show the usual quality of head and heart i.e. he must use that much of skill and diligence as is expected of an expert in the field. He must take the opinion of the technical expert in case of valuation of assets. He must be honest in his work. He should be impartial and should not be influenced by extraneous. Considerations like the vested interest i.e. the venders or the promoters of the company. He should properly plan his enquiry. he must keep full record of his proceedings, explanations given to him for future reference. This will enable him to protect himself, against any action brought against him for negligence in future. Secondly, it will help him in writing his report on the result of investigation.

(4) Drafting the Report- He must observe all the rules of writing a good report. The report must be properly drafted. He must use simple and unambiguous words. The report must be clear, comprehensive and at the same time precise. He must see that the report is absolutely correct. If it is wrong his client will suffer heavy losses and he may be held liable for negligence. The report must cover the terms of reference and should not contain any irrelevant matter or any matter which should be inconsistent with his findings. The report should state the records and documents examined by him. The report should specify whether he has checked them himself or in relying upon them. He should not make any forecast in his report. He may use statistical data and table to prove his findings, if necessary. However, statistical data should not be used as a matter of fashion or indiscriminately, particularly when they are not relevant.