INVESTIGATION
Meaning of Investigation
Investigation means a critical and detailed examination of the books of accounts, records,
and affairs of a business for a specific purpose.
It is usually conducted when there is a doubt, suspicion, or need to verify certain facts
about the business.
Unlike a statutory audit, which is compulsory and aims to express an opinion on the truth
and fairness of financial statements, an investigation is voluntary and purpose-based,
conducted whenever a particular issue arises.
Example for Better Understanding
Suppose a company’s profits have suddenly declined, or there are rumors of cash manipulation.
In such a case, the management may appoint a chartered accountant or a special investigator to find out:
•Whether any fraud has occurred,
•Whether sales are being suppressed, or
•Whether expenses are being inflated.
This process of carefully examining records to find the truth is called investigation.
Definition by Taylor and Perry
“Investigation involves inquiry into facts behind the books and accounts, into the technical, financial and
economic position of the business or organisation.”
Basis of Difference Investigation Audit
Main aim is to verify whether financial
Establishes a fact, event, or assesses a
Objective statements display a true and fair
specific situation
view
May be statutory or non-statutory, Wide and generally determined by
Scope
often specific and narrow relevant law or statute
Not restricted by fixed timeframe; Conducted periodically — quarterly,
Periodicity
may extend over several years half-yearly, or yearly
Detailed examination of facts, figures, Involves tests, checks, and samples to
Nature
and circumstances form a professional opinion
None, since it is tailored to Has inherent limitations due to
Inherent Limitation
engagement reliance on sampling and persuasion
Seeks persuasive, prima-facie
Evidence Seeks conclusive evidence
evidence
Analytical and thorough; involves Follows accounting standards, policies,
Nature of Accounting Process observation, collection, and evaluation and generally accepted auditing
of facts principles
Reported to person(s) who Reported to owners/stakeholders of
Reporting
commissioned the investigation the entity
Nature of Investigation
1. Purpose-Oriented
•Every investigation has a specific objective.
•The nature of work depends on that objective.
• For example:
• If the purpose is to detect fraud, the investigation will focus on suspicious transactions, cash
handling, and internal controls.
• If the purpose is to value goodwill, it will focus on profits, assets, and liabilities.
2. Fact-Finding in Nature
•The main aim is to discover facts and truth, not just to express an opinion.
•The investigator collects evidence and information to prove or disprove a suspicion.
3. Non-Routine Activity
•It is not done regularly like audit.
•It is carried out only when required, for example:
• When fraud is suspected,
• When a bank wants to check a borrower’s position, or
• When shareholders suspect mismanagement.
4. Thorough and Detailed
•Investigation involves in-depth checking of selected transactions or areas.
•It often goes beyond books of accounts—examining contracts, correspondence, and even interviewing
employees.
•It focuses on root causes and hidden facts rather than surface figures.
5. Independent and Objective
•The investigator must be independent and free from bias or influence.
•Findings must be based only on evidence and facts, not personal opinions.
6. Evidence-Based Approach
•Every conclusion must be supported by documentary or circumstantial evidence.
•For example, if a fraud is suspected in purchases, the investigator should examine:
• Purchase orders,
• Invoices,
• Goods received notes,
• Supplier confirmations, etc.
8. Professional and Confidential Work
•The investigator must follow professional ethics.
•All information gathered during investigation should be kept confidential, as it often involves sensitive
matters.
Investigation Methodology (Especially Where Fraud is Suspected)
When fraud is suspected, the investigation must be systematic, confidential, and evidence-based.
The following are the main steps followed by an investigator.
1. Define the Objective and Scope
Before starting, the investigator should clearly understand:
•Why the investigation is being done (e.g., suspected cash fraud, manipulation of accounts, etc.)
•What period or department will be covered.
•Who will use the report (management, court, bank, etc.)
Example:
If cash theft is suspected in the sales department, the scope should include all cash receipts and deposits for
the last 6 months.
2. Collect Background Information
•Study the company’s business system, accounting methods, internal controls, and previous audit
reports.
•Understand how transactions normally occur — this helps spot anything unusual.
•Review complaints, anonymous tips, or red flags that led to the suspicion.
3. Gathering Evidence
This is the most important step.
The investigator collects all documents and records related to the case:
•Vouchers, bills, bank statements, ledgers
•Emails, computer data, and physical records
•Confirmations from banks, suppliers, or customers
Evidence must be reliable, authentic, and properly documented.
“No opinion without proof” — every conclusion must be supported by evidence.
4. Detailed Examination and Analysis
After collecting evidence, the investigator carefully:
•Traces each suspicious transaction (follow the trail of money).
•Compares documents (invoice vs. delivery note vs. payment entry).
•Looks for unusual patterns — round figures, duplicate payments, sudden changes in
expense trends.
•Uses analytical tools or Excel to detect irregularities.
Example:
If an employee has approved payments to a supplier who doesn’t exist, this will appear
during document cross-checking.
5. Interviews and Enquiries
•The investigator talks to employees and officers involved.
•Interviews are used to clarify doubts and get explanations.
•Start with lower staff → then move to supervisors → finally meet the main suspect (if any).
•Keep the tone professional and neutral — not threatening.
•Record statements properly.
Remember:
The goal is to discover truth, not to accuse anyone directly.
6. Draw Conclusions and Prepare the Report
Once the examination is complete, the investigator:
•Summarizes facts and findings clearly.
•States what was found, how it was found, and what evidence supports it.
•Avoids personal opinions — only facts.
•The report should include:
[Link] of the investigation
[Link] and methods used
[Link] and evidence
[Link] and recommendations
Example:
“It was found that ₹2,50,000 was withdrawn from the company’s bank account using forged signatures.
The evidence includes bank confirmation, cheque copies, and CCTV footage.”
7. Recommendations and Follow-up
After reporting, the investigator may suggest:
•Disciplinary or legal action against the guilty person.
•Improvements in internal controls (like better supervision, stronger passwords, dual
authorisation).
•Training staff to prevent similar frauds in future.