Investigation I'm an auditor, darn it, not an investigator, right?

CHAPTER OUTLINE In addition to regular audit of the books of accounts of an enterprise, there may be the requirement of thorough examination of the accounts and records of past several years to fulfill certain objectives from time to time. In order to carry out thorough examination of books of accounts and records of an enterprise, investigation is undertaken. Investigation implies an enquiry into the accounts and business records to attain certain specific objective. In most cases, the purpose of such enquiry is to ascertain the true financial position of the concern or its normal profit-earning capacity or the extent of fraud. Thus, investigation is a special type of examination of accounts and records carried on by an investigator with a pre-determined objective. Definition of investigation Macmillan dictionary The process of trying to find out all the details or facts about somethin g in order todiscover who or what caused it or how it happened. Nature of investigation Critical examination & verification of records Involve personal examination of individuals Involve examination of financial and policy matters Based upon on specific objective Scope of investigation may limited or extended It is based upon on factual information It may be voluntary or contractual

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Scope of Investigation 1. Personal 2. Organizational

Finance, HR and Marketing

Ways to conduct Investigation

7 Qualities of a Good Investigation Invest the necessary resources up front Organize and plan the investigation before you start Ensure the investigation is accurate Maintain fair process Document the investigation and the outcome

Objectives To ascertain profitability To ascertain the nature and extend of fraud To ascertain the reliability of the financial statements To ascertain the financial soundness and capacity of organization

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Higher Priority Moderate Priority Lower Priority

Significant deficiencies related to the objective of the audit; should be dealt with in the short-term. Moderate deficiencies related to the objective of the audit; should be dealt with in the medium term. Deficiency related to the objective of the audit is considered minimal, and/or this represents a best practice consideration.

Purpose / classes or types of Investigation 1. Investigation on behalf of - Incoming partner - Proposed purchaser - Client - Proprietors of business - Income tax authorities - Liquidator - Insurance Co. - Share holders - Lender of money - When fraud is suspected ----- Misappropriation of cash, goods and accounts. Equity, Preference

This document is authorized for use only in Auditing Subject, at Rajagiri School of Management and Applied Science College

What are the investigators powers? Investigators have a range of powers, which can vary according to the provisions of the Taxation Administration Act 2003. In general, these powers permit the Investigator to:

Gain access to buildings and property and remain there Inspect, examine, copy and seize books, documents or records Search premises Require a person to answer questions and provide information Require a person to give reasonable assistance.

Duties of an Auditor

Never make unfounded accusations or statements; Never ask about activities unrelated to work; Never disclose private information about an employee to others not involved in the investigation; and Never detain an employee for an interview in a way that could be construed as threatening or forceful. Outline sound investigation procedures.

Differences between Auditing and Investigation 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.

This document is authorized for use only in Auditing Subject, at Rajagiri School of Management and Applied Science College

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

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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.

Useful examples for investigation module: Microsoft - Nokia

Digital Forensic Investigation Hero - Honda

This document is authorized for use only in Auditing Subject, at Rajagiri School of Management and Applied Science College