CHAPTER NO :7

INVESTIGATION

CHPTER NO 7 INVESTIGATION
INTRODUCTION:
 In addition to regular audit of the books of
accounts of an enterprise, there may be
requirement of through examination of the
accounts and records of past several years to
fulfill certain objectives from time to time.

 In order to carry out through 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.
.
continued
 An investigation may be defined as:
 A special examination of and enquiry into books
of accounts and other related records with a view
to establishing a fact or to evaluating a state of
affairs or to determining causes for a happening
in a business.

 For example an investigation may be conducted

into the accounts of a firm whose business is to
be acquired by a company or investigation may
be required to establish the extent of a
suspected fraud.
DEFINATION.
In the opinion of Taylor and Perry “Investigation
involves enquiry into facts behind the accounts,
i.e. onto the technical, financial and economic
position of
the business organization.

So investigation is a special type of examination of

accounts and records carried on by the investigator
with the necessity pre-determined purpose in
accordance with the necessity of the situation and
are concerned with something more than the
verification of accuracy of the figures of the
. financial statements.
 OBJECTIVES OR PURPOSES OF
INVESTIGATION:
 These are some of the circumstances where investigation
most frequently called for:
 For Purchasing any business (by interested party)
 For admission of a new partner.(by a person interest to
join the business).
 For seeking avenues of investment.
 For granting loan or Financial Assistance
 For suspected fraud
 For settlement of insurance claim
 For valuation of goodwill and shares
 For Judging sickness of a business unit
 For justifying negligence of the auditor
 For complaint by the shareholders
Features of investigation:
“An investigation is an examination of
accounting records undertaken for a
special purpose, in effect it is an audit of
which the scope is limited or extended in
accordance with the requirement of the
particular purpose. Its objective is usually
to discover and display the facts in such a
manner as will enable the parties for
whom it is undertaken to draw conclusions
and make their decisions accordingly.”
 On the basis of analysis of the above definition, the
following inherent features of investigation can be
identified:
 Investigation is normally conducted with certain specific
objectives.
 It involves critical examination and certification of specific
records.
 There are no statutory provisions or rules prescribed for
investigation except in case of companies, it is voluntary
and contractual in nature
 It is not only confined to examination of financial aspects
of an organization, but also concerned with the policy
matters.
It is undertaken with certain suspicion ,depending on
the nature of the objectives for which it is undertaken.
In most of the cases ,the future courses of action have
to be outlined by the investigator.
In addition to the detailed analysis and study of books
of accounts and records, personal examination of
individuals may also be undertaken.
The scope of investigation may be limited to a certain
specific objective or extended to cover a number of
objectives according to the requirements of the
situation.
The investigator reports to the person/s who is/are
responsible for his appointment.
DUTIES OF AN INVESTIGATOR:
These duties are given below.

1)Obtaining written instruction about scope and objectives of

investigation: Before starting an investigation, the investigator should
obtain from the client clear written instruction about the scope of his work
and purposes of investigation.

 If the client is interested to impose any restriction or limitation to his

work, he should also get it in writing so that he may exactly determine the
scope of his work and the nature of his duties.

2)Framing Investigation programme: Based on the objectives, scope

and period to be covered an effective investigation programme should be
chalked out.

 The investigation programme should be flexible, so that the investigator

may make required changes in the programme during actual
investigation.

 Such flexibility in the programme is necessary, since many steps in an

investigation depend on the results of the earlier steps
 3)Collection of information about the business:
 before starting his work of investigation, the investigation should collect
all relevant information about the activities of the enterprise.

 4) Enquiry about the reputation of the enterprise

 The investigator should make enquiries and collect information about the
reputation different individuals working in the organization.
 Information should also be obtain about the goodwill of the enterprise.
This information will help the investigator a lot in preparing his report.

 5) Taking expert advice

 The investigator should take the assistance of experts during the course of
his examination if required, and consult experts on matters in which his
knowledge is not adequate.
 6) Reliance on accounts and records
 If the books of accounts and required records have been properly
maintained and accounts have been audited, the work of the
investigator becomes simplified as he entitled to rely upon the
audited accounts and properly maintained records.
 The investigator should concentrate more such procedures as will
be more purposeful for investigation. But the fact that the
investigation has depended on the audited books of accounts
should be included in the investigation report.

 7) Maintenance of secrecy and confinement to purpose:
The investigation should always keep in mind the purpose of
investigation, as the purpose of investigation will determine which
records and figures should be examined in detail,

 what information he should seek from sources other than books

and records and what procedures should he adopt in his
investigation work. On the other hand, secrecy is the basic
necessity of any investigation. So, the investigator should keep
the details of the investigation very secret.
 8) Maintenance of minimum standard of work: The
investigator must be honest and he should not allow himself to be
influenced by others, as total independence is required in
investigation. So, the investigator should always keep himself
free from the influence of interested persons.
 9) Proper and correct reporting: The investigation report
should be clear and unambiguous. The investigator should
analyses the data and evidence collected by him. He must take
great care to see that his report does not contain any wrong
information.
 INVESTIGATION REPORT:
 The report on the investigation must be carefully prepared. It
should be simply worded, very clear in its meaning and as concise
as practicable in the given circumstance. It must, however, give
full consideration to all the factors affecting the decision to be
made.
 Investigation report should contain all important and relevant
matters. He
must present in his report what is essential, ignoring what is not
essential. Facts and only facts should be presented and nothing
based or estimates should be given.
 The investigator should mention in his report the instructions
given to him by his client with regard to the investigation. He
must mention the limits if any, put in the scope of his work.

 QUALITIES OF AN INVESTIGATOR:
 An Investigator accountant should combine sound auditing,
techniques considerable experience, sound judgment and a good
understanding of a variety of business enterprises.
 The investigator should work honestly and diligently. He must
keep the interest of his client at the top and must work with a
feeling of some service to the client.
 The subject of investigation is highly technical in nature and
usually a senior accountant with profound knowledge and
experience suitable for the job.
 He must be a man of competence and ability to understand
different critical matters clearly.
 Distinguish between audit and investigation
 TYPES OF INVESTIGATION
 There are many types of investigation but certain main classes can be
identified. Following are some of the areas where the investigation is
mostly called for:
 Investigation on behalf of a person or company who wants to purchase a
running business.
 Investigation on behalf of a person who is interested to join as a partner
in a partnership firm.
 Investigation on behalf of a person who wants to lend money to a
business or is interested to know its financial position.
 Investigation on behalf of the owner / shareholder of the business who
suspects a fraud.
 Investigation on behalf of the tax authority for assessing actual tax
liability.
 Investigation on behalf of prospective shareholders who wish to make a
valuation of shares of a limited company.
 Investigation on behalf of government into the affairs of a sick company.
 Investigation under the Indian companies act i.e. the statutory
investigation.