Auditing is a mandatory process in the listed companies. Companies with more than one crore of turnover and gross receivables of more than twenty-five lakhs must do a tax audit. Companies with a public interest should do auditing as a mandatory condition. The score of 750 for the public interest denotes the auditing procedure. If the score of public interest is below 350, there is no need to audit the financial statements. Auditing is the fundamental process for understanding the financial figures of the company. The investigation is the process that digs deep into the specific departments of the company. The detailed investigation of accounts is called the forensic audit. A blog present the readers with a layman’s understanding of the investigation and audit process. Auditing is the process of checking all the areas of business. The investigation is to check the specific area of function to understand the fraud activity. Auditing is a mandatory process for every year. The investigation is not a mandatory process. It arises if there is a situation for understanding the process.
Laws regarding the investigation:
In the companies act, 2013, there are sections for appointing a professional as an inspector for undertaking the inspection. Section 210 explains the appointment of the inspector. Section 211 is about the appointment of several professionals to investigate fraud activity. Section 217 of the companies act reveals the procedure for the investigation. Section 217 explains the purpose of carrying out the investigation. The inspector should take care of the documents that describe the financial activities. According to sections 219 and 220 of the companies act, the inspector has the right to investigate the accounts of the related companies. Sections 223 and 224 explain the value of the final report. After preparing the evidentiary final report, it is sent to the central government.
Laws regarding auditing:
The companies act, of 2013 and the chartered accountant’s Act of 1949 explains the role of an auditor. Section 141 of the companies act says about the appointment of an auditor. A chartered accountant is eligible to get an appointment as a chartered accountant. Section 138 says the appointment of auditors is inside or outside the company. They work along with the employers and as a separate office. The management team conduct the internal audit. The external auditors conduct the external audit or statutory audit.
Difference between investigation and auditing:
- Auditing is the examination of all the operations and financial records of the company. A forensic audit is with a purpose. It focuses on the specialised area and related documents.
- The objective of auditing is to bring accuracy to financial activities. The accuracy is analysed by taking samples from random operations. The objective of doing a forensic audit is to check the reason behind the mistake.
- Forensic audits help auditors to plan the future without mistakes.
- Auditing has a vast scope, and forensic audit has a limited scope.
- Chartered accountants conduct the auditing work. Government authorities conduct forensic audits. The government authorities can be chartered accountants, company secretaries, cost accountants or lawyers. Knowledge about the legal aspect and relevant law helps professionals to understand fraud activity.
- The audit is for one year. A forensic audit is conducted depending on the nature and the purpose of the investigation.
- Auditing collects persuasive evidence and does not submit the evidence to a court of law. A forensic audit collects the conclusive evidence and submits the same to the court of law.
- Auditing is conducted as per the guidelines recommended by the Institute of chartered accountants. The forensic audit has no guidelines. It is an objective-based one and not guided by the guidelines.
The role of an auditor:
- The auditor has the right to access the financial documents of the company.
- The auditor has the right to inquire about the financial operations. The background data of the loans, financial transactions, receivables, payables and assets and liabilities are necessary for an auditor.
- The auditor declares the true financial position of the company.
- The auditor should follow the standards prescribed by the Institute of chartered accountants.
- The auditor should disclose the details of the fraud activity to the central government.
- The auditor has the right to sign the documents and audit reports of the company. He is responsible for the calculations and conclusions in the audit report.
The role of a forensic auditor:
- A forensic auditor investigates fraud activity or financial crime.
- A forensic auditor checks the financial history and financial position of the company. He conducts the forensic audit as per the regulations.
- The forensic auditor works with the attorneys, clients and companies to prove the client is innocent.
- A forensic auditor discovers the information and writes a detailed report about the fraud activity.
- He checks the securities fraud and suspicious activity for the insurance companies.
- A forensic auditor uses material statements and software programs to find the mistake in the internal process.
- A forensic auditor explains in the court the way he collected the evidence that supports the argument.
A chartered accountant has wide scope in auditing and forensic auditing. The analytical thinking of the professionals pushes them towards the best profession. As a grooming professionals, the students should understand the different roles of chartered accountants. Chartered accountants are valued according to the nature and quantum of the job. They handle cases according to their experience. The dream of a chartered accountant takes him to the right place.