What is the difference between a general audit and a fraud investigation audit?

Both the processes involve reviewing the book of accounts of the auditee and reporting on it. However, there is a huge difference between the two. Allow us to explain how auditing is different from the investigation:

Nature: While an audit is a general investigation, a fraud investigation is a detailed examination conducted to uncover a specific truth or fact about the auditee.

Scope: An auditor is tasked to form an opinion on the financial report, an investigator conversely seeks to respond to the questions in the engagement letter.

Frequency: Unlike audit which is conducted annually, fraud investigation is conducted ONLY when the need arises.

Evidence: The evidence for an audit is of persuasive character, on the other hand, the same in the case of a fraud investigation is unambiguous.

Auditor: Audit can be conducted by professional financial auditors (Chartered Accountants) but to perform a fraud investigation one needs to hire an expert.

Benefits: Audits can advantage businesses by verifying that their records are accurate and ensuring they are on the right track to accomplishing their goals. An audit also can point out red flags where fraud may have been committed but is not designed to root out every instance of fraud. Auditors aid companies to spot material misstatements in the company’s financial statements caused by either fraud or error. Fraud investigation, on the contrary, helps companies to identify fraud, fraudster, motive, reasons, loopholes in the system, potential harms in its wake and finally ways to prevent similar frauds from happening again in the company.

Obligation: Annual audits are mandatory; fraud investigations are not. The latter comes into the picture as a need of the hour.

Appointment: An auditor is appointed by shareholders of the auditee company to conduct a routine check on financial transactions while an investigator is hired by either management, investor or a third party to analyse potential fraud indicators and the impact of current fraud trends and make recommendations as to appropriate mitigation.