AUDIT AND

INVESTIGATION
INVESTIGATION - DEFINITION
 
Investigation refers to a systemic and in-depth examination or inquiry to
establish a fact or evaluate a particular situation (such as whistle-blower
complaints and so on). The Investigation covers core areas of financing
decisions, investment decisions, fraud or profitability or cost
determination, conflict of interests, etc.
 
DIFFERENCE BETWEEN AUDIT AND INVESTIGATION

5 STEPS IN INVESTIGATION steps involved in audit investigation

 
Given below are the key steps involved in investigation audit
investigation
1. Determination of objectives and establishment of scope

 When the assignment is accepted, the investigator should be clear

about the objective of the investigation. The scope of documentation
review should also be clearly established and to be aligned with the
objective. audit and investigation
 
2. Formulation of Investigation Program

 There is no standard program or procedures for investigations. The

investigation program should be prepared keeping in mind the fact or
situation under question, the objectives and scope of review, nature of
 client’s business, personnel involved, etc. The investigation program
should be flexible to incorporate the changes that happen during the
investigation.
 
3. Collection of Evidence

Through detailed examination, the investigator performing the

investigation should gather relevant evidences (which should be
conclusive, clinching and should stand the test of law) to establish facts
or the situation under question. In case, clinching evidences are not
available, adequate corroborative evidences should be available to
establish the facts.
 
4. Analysis and interpretation of findings

With the evidences collected, the investigator should perform an

objective analysis of the facts.
 
5. Reporting of Findings

The investigation report should be submitted to the authority who

appointed the investigators (usually Board of Directors etc). The
following should be adhered to in the investigation report
 
1. The investigation report should contain information which is
only relevant to the fact under question.
2. The contents of the investigation report should be
appropriately worded which will not be open for multiple
interpretations.
3. The investigation report should appropriately link relevant
facts and evidences.
4. Assumptions, if any made, should be called out in the
investigation report appropriately.
5. The investigation report should contain the nature and
objective, scope and limitations of the assignment.
6. The opinion of the investigator along with the facts and
remedial actions should be clearly written in the investigation report.
 
 
KEY CONSIDERATIONS IN INVESTIGATIONS - audit and
investigation
 
1. Type of review (100% verification or sample checks) to be
performed during investigation

The investigator should make this decision based on the circumstances

of the case under the investigation. There could be certain instances
such as quantification of the bribe paid, confiscation / misappropriation
of assets, falsification of expenses, etc., which would require complete
verification of data during the investigation. In cases such as due
diligences of third parties, accounting errors, etc., sample checks could
be performed.
 
2. Reliance of work done by third parties during investigation

The investigator should be aware of the risks and objective of the case
before deciding to place reliance on the work done by third parties such
audited financial statements, internal audit reports, due diligence
reports, management representation letters etc. The investigation report
should contain in clear terms, the scope of reliance on the work done by
others.
 
3. Requirement of an expert in the investigation

 The investigator may involve subject matter experts such as forensic

accountants, legal professionals, tax consultants, etc., depending on the
nature of the case under review. However, the investigation report
should contain the details of reliance on the work done by the experts
and their findings.
 
4. Basis of opinion

The investigator should refrain from issuing a speculative or vague

opinion. The opinion after the investigation should be confined to the
facts under review. If a conclusion cannot be arrived appropriately on
the facts reported, the justifications for the same should be called out in
the investigation report.
 
5. Whether futuristic statements can be made in the investigation
report - audit and investigation

 The statements made in the investigation report should be strictly

restricted to the case / facts under review. The investigation report
should not contain any futuristic statements / trend analysis unless
otherwise called for by the appointing authority, which should also
contain adequate disclaimers.
 
6. Whether to retain working papers / evidences after the
investigation

 All evidences, working papers, documentations should be retained as

per the terms and conditions of the engagement (investigation)
agreement with the appointing authority. In case of any legal
requirements in the court of law, the evidences would be required to
substantiate the facts established by the investigator. Audit and
investigation

KINDS OF INVESTIGATION :-   Following are the important kinds of

investigation : 1. Investigation for the purchase of a business.

2. Investigation for preparing report.

3. Investigation for credit purpose.

4. Investigation for investment.

5. Investigation for the detection of fraud.

6. Investigation for incoming partner.

OBJECTS OF INVESTIGATION :-

1. Detection Of Concealed Income :- To detect the undisclosed income

investigation is made on behalf of income tax authorities for the tax liabilities.

2. Purchase Of Business :- Some times any one person or firm wants to purchase
the business. So ti know the financial position and earning capacity of the business
investigation is made on the behalf of the purchasers.

3. Credit Purpose :- Sometimes bank or client wants to grant the loan to a

business. So investigation is made on his behalf to know the financial position of
the firm.

4. Entry Of New Partner :- A new man who wants to enter into the business he will
also try to know the financial condition of the business. Investigation can also can
be made on the behalf of the incoming partner.

5. Purchase Of Shares :- If any client wants to purchase the shares of the company,
investigation can be conducted on his behalf to know the real position of the
company.

6. Doubt Of fraud :- If proprietor of a business is doubtful about the real position

of the business, investigation may be conducted on his behalf.

7. Business Removal :- In case of a compulsory removal of business, investigation

is conducted to find out the amount of compensation payable.

8. Case Of Misappropriation :- On behalf of the beneficiaries investigation may be

conducted where the trustees are suspected of fraud or misappropriation.
9. Auditors Negligence :- If there is a charge of negligence on auditor then
investigation may be conducted on behalf of the company or any person.

10. Misfeasance Or Fraud :- If auditors are suspected of fraud or misfeasance

investigation may be conducted on the behalf of the company's liquidator.

11. Insurance Claims :- Investigation may be conducted for claims under

insurance policy covering the losses.

12. Merger :- Investigation object may be merger of two or more than two
organizations. The rights of shareholders in all can be protected on the basis of
investigation reports.

13. Taxation :- Investigation object may be the tax justification. To determine the
income tax investigation can be made by the income tax department.

14. Investment Decision :- Before investing the capital investor may investigate
into the business matters for making decisions to buy or not to by the shares.

15. Business Promotions :- Promotion of business may be the object of

investigation. The investigator can guide management for the promotion of sale
and business activity.