Category: Commerce Notes PPT

Henri Fayol explains management as a process of forecast followed by planning, organization, command, coordination and control of activities of others. In simpler terms, management refers to proper organization and delegation of work along with ensuring its completion. Vitally, this simple concept is the basis for Fayol’s principle of management.

Notably, be it a corporate set up or a simple business enterprise, efficient management is vital to ensure smooth functioning, which in turn generates significant revenue. Keeping this in mind, there have been quite a few theorists who have attempted to theorize the management’s role and function. In this regard, principles of management offered by Henri Fayol are a remarkable success. 

Understanding Henry Fayol’s Principles of Management

Management as a subject of study has developed in recent years. Various scholars have contributed significantly to developing these subjects as a course of study that is taught in high schools and colleges as a professional career. 

Henry Foyal is one of such famous academicians who has given his famous 14 principles of management. He had proposed these theories in the early 20th century that hold very true and are important in the management in business settings of the world today. In industries or manufacturing units many individuals are employed for the production of the final product. It has been observed in such settings that the employees or laborers are not efficient in every department of the work division. 

This observation of Henry Foyal led to his first conclusion that it is very important to segregate the employees according to their domain of expertise. This method of division of labor increases the efficiency of workers and benefits the enterprise or business unit as a whole. This method also assures for the accuracy of the work and its speedy completion. Authority and responsibility are also the major factors for the success of a business unit or any other organization and go hand in hand. Authority without responsibility or responsibility without authority can be a disastrous affair to be dealt with. 

Likewise, Henry Floyed has suggested and described very crucial and fundamental factors of managing the workforce or human resources of anybody or organization. As a student of commerce, understanding these basic principles of management will not only help you in exams but also be very useful ordereir future professional life. 

Multiple operations are going on in any business activity, and it is very much important for the business owner to have a good idea of the cost that each of the activities requires, otherwise, there are chances that the cost incurred in a specific business activity becomes more than the income that the same activity manages to generate. Therefore, to take care of all such things, it is important to have good management of cost accounting. And hence, Cost accounting is one of the significant parts of Managerial Accounting.

So, for the students of Commerce, it is just as important to learn and master the subject of Cost Accounting, like that of Financial Accounting. But before Mastering any of the topics it is important for the students, the value of the subject, in this case, Cost Accounting, adds not only to their own life but in the various operations of the business. In simple terms, it means that the students must learn about the importance of Cost Accounting. Hence, explains the importance of cost accounting in a simple and accessible language.

 

What is Cost Accounting?

Cost accounting is the version of Managerial Accounting, this aims to capture the company’s total cost of production. The same is done by assessing the variable costs at each step of production as well as the fixed costs as assessed such as the expense.

 

The main point in this regard is that – 

• Cost accounting is used internally by the management to make a fully assured business decision.

• Unlike financial accounting, which provides information to external financial statement users, cost accounting is not required to conform to any set standards which can be flexible to meet the needs of the management.

• Cost accounting considers all kinds of input costs that are associated with production, including both variable and fixed costs.

• Types of cost accounting include standard costing, activity-based costing, and marginal costing.

 

A Brief Overview of Cost Accounting

Many believe that the concept of cost accounting was developed during the era of the industrial revolution because due to the new global demand and supply of the product it became inevitable for the business owners to monitor their fixed and variable costs and manage their manufacturing process. Cost Accounting is a form of managerial accounting that tries to encapsulate the total cost of production in the business, and it does it by measuring the Variable costs of each phase of production and by measuring the fixed costs, for example, lease expense etc.

The basic forms of cost, included in the cost accounting are Fixed Costs, Operating Costs, Direct Costs, Variable costs, Indirect Costs.

Types of Cost Accounting

There are various types of Cost Accounting:

1. Standard Costing

Standard costing assigns ‘standards’ to the costs. The standard costs are grounded to the labour and materials to produce the goods and services under standard operating conditions. 

2. Activity-Based Costing

Activity-Based Costing identifies the overhead costs from each department and then assigns specific cost objects like goods or services. The ABC system of cost accounting is based on these activities.

3. Marginal Costing

Marginal costing is also known as the cost volume profit analysis is the impact where the cost of a product is added to one additional unit into the production unit. This type of costing is useful for short-term economic decisions. 

All these types of costs help the management in identifying the impact of cost in the business unit. This type of analysis is used by the management to gain analysis into them potentially to produce profitable products.

 

Importance of Cost Accounting

The importance of cost accounting is very much useful to the management of an organization, the importance of Cost Accounting is discussed in the following section vividly:

Cost is a generic term that needs to be classified for further use. Cost Accounting involves the recording and classification of all such costs. Costs involve the prime cost, direct cost, factory cost, selling cost and more other costs. Classification allows the management of the costs and to ascertain the profitability of any such processes and further activities. This also helps in calculating the efficiency.

This is efficient for the business to focus on controlling the cost of the inventory, labour, and various other kind overhead costs. For example, to achieve maximum efficiency in their inventory management they can adopt the EOQ technique which is the costing technique. Similarly, by analysing the costs of labour and the capacity of machinery their efficiency can be improved also. Cost accounting classifies the overheads into fixed and variable.

Cost accounting makes the basic distinction between fixed and variable costs. This is then used by the company or the business unit to fix the prices of the products, according to their costs of the product. The management here finds the most ideal price for the product or the service, which is not too high and not too low. For example, where the economy suffers a depression period.

The businessman lowers the prices of his products to survive the depression circumstances in the economy. He can start this by trying to control the variable costs and to allow him to fix the product’s prices.

The organizations use the standards to make the estimates and the budgets for their future. They use this as the basis to measure the actual efficiency of the process or about the department.

This is an entire branch of cost accounting which is known as Standard Costing dedicated priorly to this process.

Advantages of Cost Accounting

• Helps in managing costs: As said earlier, the main idea behind implementing cost accounting into the business is to manage the various types of costs. It also helps the management to have an idea of the cost price and selling price of the product and service.

• Helps determine the total per-unit cost: The business needs to fix the selling price of the product or the service that they provide, beforehand. For doing so, it is important to know the per-unit cost of production. And hence, the techniques of cost accounting help the manager in knowing the total-per unit cost of production.

• Helps in understanding the profitable and non-profitable activities: In any business, many activities are going on at any specific point in time, but the thing is that not all business activities are profitable. Hence, the manager needs to know about all the activities which are not making any profit. And cost accounting helps in identifying all those activities.

• Helps in Fixing the Standards: The business needs to have fixed standards regarding everything. It helps in estimating the budgets for the future. And Cost accounting helps in that there is a whole field of costing dedicated to this called Standard Costing.

An Overview of the Types of Cost Accounting

• Standard Costing: As the name suggests it helps in assigning the standards to the costs. The factors that are to be considered in standard costing are labour and materials.

• Activity-based costing: More often than not it is referred to as ABC, due to its initial. When the company assigns the overhead costs to the specific goods or services, Activity-based costing is used.

• Marginal Costing: to examine the variable costs on the total volume of the production of the output, marginal costing is used. It is beneficial and used quite often in making short-term financial decisions.

If you wish to learn more about cost, costing, and cost accounting then you may follow this link: Cost, Costing and Cost Accounting – Characteristics, Types and Advantages 

The Indian Contract Act came into effect on 1st September 1872 and is one of the oldest mercantile laws of the country. This law provides guidelines that help in the formation and compliance of Contracts in a regulated and organized manner. These rules and regulations provide the framework for the course of Action to be followed in case of any disputes arising from the Contracts. The Act has 266 sections and is applicable to the entire country except for Jammu and Kashmir. 

 

Let’s understand the key elements of this Act and the definitions of its important features.

 

The Indian Contract Act, 1872  provides the guidelines for forming a valid Contract. It plays an important role wherever there is an agreement or a Contract. The Contract Act defines the term ‘Contract’ under its section 2 (h) as ‘An agreement enforceable by law’. 

 

This definition has two key elements: agreement and enforceable by law. 

• Agreement- An agreement is every promise or the set of promises that form the consideration for each other. 

• Enforceable by law- When these promises are held valid in the court of law and the parties of the Contract can be held liable to complete their promises, the Contract is enforceable by law. 

• Promise- Section 2(b) of the Indian Contract Act, 1872 defines a promise as: ‘when the person to whom the proposal is made signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted, becomes a promise’. A promise to do or abstain from doing something becomes an agreement when it is accepted by all the parties involved in the agreement.

 

What is an Agreement?

An agreement is a promise or commitment given by one party to another party. It includes an offer that is made by one person and accepted by the other person. In simple words, an agreement happens when an offer is made by one person and accepted by another person.  It consists of two or more parties. It becomes an agreement only if the essential ingredients are fulfilled. There must be a consideration.

 

Essentials of Forming an Agreement:

• Parties – There must be two or more parties to form an agreement.

• Offer or proposal – The proposal must be made by one party to the other.

• The person(s) to whom the proposal has been made must clearly understand all the aspects and terms of the proposal

• Acceptance – The offeree or the person to whom the offer has been made, must accept the proposal and give his assent to all its terms

• Promise – When the proposal is accepted it becomes an accepted proposal or a promise. A proposal is not synonymous to a promise but becomes one only after its acceptance

• Consideration – An agreement is accepted with a consideration which is the price for the promise made to be paid as a consideration.

 

Types of Agreement

Written agreement – Agreements are done by writing in a special layout called written agreement. It contains certain terms and conditions which are accepted by the parties with consideration.

Oral Agreement – An agreement that has a set of gestures and terms agreed via spoken or by spoken communication.

 

To Sum it Up: 

 

What is a Contract?

An agreement enforceable by law is called a Contract. An agreement cannot be said as a Contract unless and until it is enforced by law. A Contract is an agreement that is accepted by both parties and is enforceable by law. It gives certain rights to all the parties involved and also bestows on them certain obligations that they must fulfill. A Contract is an agreement but not all agreements are Contracts.

 

Essentials of a Valid Contract

For a Contract to be valid, it must be enforceable by law and must include the following essentials given under Section 10 of the Indian Contract Act.

• Legal Obligation- The parties entering into a Contract must have the intention of entering into a legal obligation. Social agreements and obligations are not considered a Contract as they do not create any legal obligations on any party. 

• Certain Terms- A legal Contract must have certainty of meaning.

Example- A agrees to buy B’s house for a reasonable amount. A valid Contract must define the exAct amount that A intends to pay B for buying his house. 

Example- A enters into a Contract with B to bring back to life B’s father for ten thousand rupees. Since the Contract involves the performance of an impossible Act, it is not a valid Contract

• Competency- The parties must be legally competent to enter into a Contract. According to Section 11 of the Indian Contract Act, people who are considered competent to enter into a Contract include: a person who is of the age of majority as per law, of sound mind, and not disqualified by law from entering into a Contract (this includes convicts, alien enemy, foreign national, etc)

• Consideration- The Contract must involve consideration as per the principle of ‘quid pro quo’ or something in return. A valid Contract must include a consideration that must be something of value. 

• Legal Consideration- Section 23 of the Contract Act defines a legal consideration as something not forbidden by law.  

 

Types of Contract

1. Valid Contract – A Contract is said to be a valid Contract when the Contract has all the essential ingredients present in it. 

2. Void Contract – A Contract is said to be void when a Contract is void from the beginning when it was made, and which cannot be enforceable by law. It lacks enforceability.

3. Voidable Contract – A voidable Contract is a Contract, not a void Contract. This contAct can be affirmed or rejected by the parties. This Contract starts as valid but later there will be an option for the parties to move forward with it or deny it. It can be declared invalid at the request of any party because of any defect.

4. Illegal Contracts – When the subject matter or the terms or conditions are not accepted by society and it is already unlawful then it becomes an illegal Contract.

 

Breach of Contract

Breach of Contract occurs when one of the parties fails to abide by the terms and conditions accepted in the Contract. It can happen by the non-performance of certain terms and conditions as mentioned in the Contract. The breach of Contract can be resolved among the parties and if it is still not resolved then they can approach the court.

 

There Are Three Conditions To Breach Of Contract –

• If party fail to deliver certain conditions in a certain duration of time

• If the party does not meet the terms of the Contract

• If the party fails to perform.

 

Breach of Contract is a civil wrong. One who breaches the Contract may face legal Actions.

 

Solved Questions on the Indian Contract Act, 1872

1. A Agrees to Buy B’s House for a Sum of Fifty Lakh Rupees. Is this a Valid Contract?

Ans: It will be a valid Contract only if:

• B has been made a party to this Contract

• Since the statement says that A ‘agrees’ to buy the house, it denotes that an offer has been made to A and if he accepts the offer he must communicate his acceptance to B.

 

2. James Puts an Advertisement Outside His House for Selling it for One Lakh Rupees. Jack Sees the Advertisement and Agrees to Buy the House but James Refuses to Sell the House to Him. Can Jack Sue James for Breach of Contract?

Ans: The advertisement was only an invitation to offer and not an offer by itself. Since James had not accepted Jack’s offer or bid of purchase there was no Contract between them. Acceptance is an integral part of a valid Contract. Hence Jack cannot sue James for a breach of Contract.

What Is Infrastructure?

A country needs some basic amenities and services to function properly. Without these, the life of the citizens and the smooth work of the businesses cannot happen. These amenities and services are called Infrastructure as a whole. To term service as infrastructure, you have to see if that service has some kind of physical aspect. For example, the transport service includes buses, bus stands, petro pumps etc. So we can call the whole service as transport infrastructure. Without a group of infrastructure, our life would come to a standstill.

Importance of Infrastructure

A country cannot transition to a developed nation if she has poor infrastructure. It is the infrastructure that helps the industries, businesses, farms and shops to work without any obstruction. If someday you decide to set up a car manufacturing unit, your plan will fail if the road near the manufacturing is not developed. It is like you bring raw materials to your unit and your unit cannot send finished products to the market.

One infrastructure is linked to other infrastructure and services. So the lack of one can hurt the other. For example, if a nation does not have adequate mining infrastructure, it cannot mine an adequate amount of coal. As a result, the power supply infrastructure will face trouble. Lack of adequate power supply, in turn, can lead to huge problems in other sectors. So when a government or private entity decides to improve infrastructure, it will not help the things that are directly connected. It will have a domino effect. 

Infrastructure does not just help businesses, it can impact the personal lives of the citizens. A place where there is no hospital will see a rise in the mortality rate. A place where there are enough schools and colleges will help in improving the literacy rates. A place with excellent power supply will provide its citizens with a higher living standard.

Infrastructure In India

Post Independence

To discuss the infrastructure development in India, it is necessary to shed light on what condition the British left India when they were forced to return to their country. Shashi Tharoor in his book – An Era of Darkness: The British Empire In India says, “In 1600, when the East India Company was established, Britain was producing just 1.8% of the world’s GDP, while India was generating some 23%. By 1940, after nearly two centuries of the Raj, Britain accounted for nearly 10% of world GDP, while India had been reduced to a poor ‘third-world’ country, destitute and starving, a global poster child of poverty and famine.”

So in 1947, India could be considered a poor nation. As far as the infrastructure is considered, a developing nation must build basic or primary infrastructure. Thus the First Five Year Plan concentrated on building irrigation, agriculture and energy. Along with that, the planners had the foresight to include communication, education (IITs) and transport in the infrastructure enhancement planning. 

The Run-Up to the Liberalisation

Once the primary infrastructure development was set in motion, the government took more ambitious plans like setting up the Atomic Energy Commission of India. The second and third Five Year Plan put into motion rapid industrialisation. However, the wars with China and Pakistan derailed the infrastructural reforms to a large extent. These wars taught the government to invest in defence-related infrastructure.

The Liberalisation of the 1990s

Even though adequate planning was done, the economy of India was in shambles. The infrastructure development stagnated. The government realised that it is necessary to release the monopoly that it had over many sectors. Finally, the Narasimha Rao government opened the doors of India to the foreign players allowing 51% foreign equity participation. This led to the influx of new technologies and greater experience. The Economic Liberalisation, along with the Public-Private-Partnership, helped immensely in India’s infrastructure growth. For example, the telecom sector was reeling under government monopoly. When it was opened up to the private players, the sector saw huge growth and this helped in establishing an acceptable telecommunication infrastructure in India.

Energy Infrastructure in India

The textbook has excellent information on energy infrastructure. To have a future of infrastructure in India, the energy sector, particularly the Power Sector needs an overhaul. The current government of India is doing all in its capacity to do that. India relies on legacy power infrastructure. This results in poor electric supply along with huge losses for the electricity boards. On the other hand, people also think that they are paying more for electricity consumption. The Modi government has invested $35 billion to upgrade the energy infrastructure in India.

Health Infrastructure In India

When it comes to health, India is divided into two categories: rich and poor. The rich people have access to private hospitals. The private healthcare infrastructure in India is by and large acceptable. However, it is not possible for poor people to afford the services of private hospitals.

The public hospitals on the other hand are poorly maintained. In 2015, India spent just 1% of the GDP on public health infrastructure. Lack of doctors and nurses, negligent attitude from the government and doctors’ aversion towards joining public hospitals contribute to the unfortunate condition of the public hospitals. 

Urban Infrastructure In India

Amid all the reports of gloom, the good news is that the Urban Infrastructure in India is quite acceptable. According to a survey conducted by GIIA-Ipsos Global Infrastructure Index 2019, 57% of the urban Indians feel that the infrastructure conditions are good.

However, upgrades need to be done in order to make the Urban infrastructure in India environment friendly. Nuclear power, solar power, electric vehicles, e-waste management etc. should be addressed much more effectively. The future infrastructure projects in India must take into account global warming concern while being planned.

Did You Know?

The ‘infra’ in infrastructure comes from the Latin word which means under or below. Does that mean we should consider only those structures that are built from within the ground as infrastructure? No? What infra means here is ‘underlying’ not just under. It’s logical. Infrastructure is the underlying support that the non-tangible things like quality of life, education, health etc. can get.

A manager in a company who encourages innovative product, modified development and latest marketing skills are known as Intrapreneurs. He acts like an entrepreneur and also works in a large organization.

To know further about this managing duty, let us quickly explore this.

Intrapreneurship

An intrapreneur is an employee who is responsible for developing an innovative idea or pitching a fruitful project within a company. The intrapreneur may not come with the risks or reap the rewards of an entrepreneur but the intrapreneur has access to the company’s resources and capabilities of an established setup. Intrapreneurs are the employees of a company who are designated to work on a special idea or an important project. With the given time and freedom, they are expected to develop the project as an entrepreneur would.

However, they do not work singly, intrapreneurs have the resources and capabilities of the firm at their need.

Entrepreneur Meaning

An individual who creates a brand new business, bearing most of the risks and also enjoying most of the rewards is termed as an “Entrepreneur”. The entrepreneur is generally seen as an innovator who is the source of new ideas, goods and services and business procedures. Entrepreneurs play a leading role in any economy. With the use of skills and initiative, they anticipate the needs and bring new ideas to the market and the society at large. Entrepreneurs who are successful in taking on the risks of a start-up are rewarded not only with profits but also with fame and assured continued growth opportunities at their hands. 

Entrepreneurship is one of the resources economists categorized as essential to production, the other three being the land, natural resources and labour/capital. An entrepreneur combines the first three of these to facilitate their working in manufacturing goods or provide services.

Entrepreneur and Intrapreneur

Intrapreneurs and entrepreneurs have altogether different objectives. An entrepreneur visualises in creating a company from the scratch or zero. While an intrapreneur has the later vision for an already established company. Their vision may involve remarkable changes according to the company traditions, processes or products. The intrapreneur typically has direct applicability to his skills and experience to serve in his job.

For intrapreneurs, it is to work within an existing framework which offers many advantages to them. The main benefit is that the organization provides them with the resources they need which include human resources, a legal team and financial department. Also, intrapreneurship enables the professionals to use the funding from their organization. On the other hand, Entrepreneurship may offer more freedom as entrepreneurs can determine the work culture, schedule and even the basic dress code for their business. 

Types of Intrapreneurship

There are two types of intrapreneurship:

1. Added Value

The first type of intrapreneurship is directly linked to the core activity of the organization. Intrapreneurial ideas will add value to the company, thus they foster innovation and pave the way for growth. They are appointed to add value to compliment the parent company in some way. The intrapreneurs carefully analyse what society needs and develop their project according to that.

2. Spin-Off

The parent company may choose the project to not create a new company, but rather a different entity within the company’s ambit This varies greatly from one intrapreneurial project to another. At times, simply sharing of resources lead to a successful project. 

Social Intrapreneurship

In the era where business meets sustainable development along with social responsibilities, a new kind of manager emerges as the social intrapreneur. A social intrapreneur is also an entrepreneurial employee who develops a profitable new product or service or business model which creates value for the society at large.

Social intrapreneurs help employers meet commitments and they create value for customers and the communities. Some companies see social intrapreneurs as one way to stay competitive from others in the market.

Social intrapreneurs start initiatives within the existing institutions:

Corporate, education, public or non-profit organizations create social or environmental benefit while moving the institution’s mission and goals forward. They use these existing infrastructures and organisational resources as levers to deliver a social value on a large scale.

Intrapreneurship is an important concept, though not recently, Steve argues that every company should formulate their HR team to hire such managers which provide benefit to the company in the long run.

Auditing is the process of reviewing the book of accounts of a certain entity and reporting on it. An investigation is considered to be an enquiry which is conducted for establishing a specific truth or fact about that entity. The difference between auditing and investigation is explained vividly in the below table – 

 

These were the differences between investigation and auditing.

Auditing

Auditing is an unprejudiced and efficient assessment of the financial statement of a substance to offer input on an evident and reasonable view. The word financial statement may incorporate Balance Sheets with Notes to Accounts, Income Statement and Cash Flow Statement. The term element alludes to any association whether it is profit-making or a magnanimous organization. Size and structure of the element are likewise unessential. 

 

The essential goal of auditing is to discover and report the level of precision and dependability of the financial statements of an element. Moreover, it guarantees that whether the substance methodically keeps up the books of records, documents and vouchers or not. The auditor plays out the audit procedure. The auditor looks for the accompanying three imperatives of the fiscal summaries: 

• The arrangement of the financial statement depends on acceptable accounting approaches and its reliable application. 

• Important Regulations are being followed while setting them up. 

• Every material, in reality, is unmistakably unveiled in the financial statement.

Investigation

An exertion made to discover the realities behind a specific circumstance to find the fact of the matter is known as Investigation. 

 

For a business association, auditing and investigation go hand in hand. Investigation infers that a composed, detailed and basic assessment of the books of records and transaction records (over a wide period) of a substance, directed for a particular reason or to uncover a reality or to build up reality with the assistance of proof. The most widely recognized strategies utilized during the time spent investigating are searching, perception, cross investigation, inquiry, investigation, and so on.

Investigation in Auditing

Investigation in Auditing comprises the counteraction, recognition and measurement of extortion, tax evasion, dread account and debasement. Investigation in Auditing includes the assessment of records and the utilization of bookkeeping techniques to find money-related inconsistencies and to follow the movement of assets and funds all through associations.

Types of Investigation in Auditing

Some of the common types of investigation in auditing are:

There are certain procedures for conducting these types of investigation in auditing which are:

1. Determination of Nature and Scope: The directions of the clients in regards to nature, degree and objective ought to be acquired in certain and unambiguous terms. If the directions are unclear, they may make disarray and issues during the investigation. The directions should cover the territory of the investigation, the motivation behind the investigation and the period to be researched.

2. Formulation of Investigation Programme: The finding of the previous steps will choose the further course of the investigation. While figuring the auditing and investigation programme, the wide degree and limits are to be resolved. The rundown of records and reports to be confirmed are to be resolved at this stage keeping the goal and motivation behind the investigation intact.

3. Conduct of Investigation: An intensive investigation, i.e., assessment of different records and archives and assessment of different people of the worry, identifying with the investigation region are to be directed. At each stage, the agent may choose the further course of investigation dependent on the conditions and different discoveries.

4. Investigation Report: The investigator may respond to every one of his discoveries, break down all the supporting reports and explanations, completely look at the investigation records and make inferences. At the same time, he should have a receptive outlook, free from pre-imagined thoughts.

Main Differences between the Process of Auditing and Investigation

• Auditing refers to the process of inspecting the financial statement of an entity and then giving an independent opinion on it. While, in an investigation, a detailed study of the account books is carried out to discover the truth of the matter. Thus auditing can be said to be a general examination in nature, while the investigation is a critical process.

• The evidence that one receives during an audit process is persuasive. On the other hand, the nature of evidence obtained from the Investigation process is conclusive. 

• Auditing is generally conducted on a yearly basis, but Investigation is conducted for specific concerns and needs of a company.

• Auditing is performed by the auditor of the firm, whereas an expert team (unbiased nature) is constituted for the purpose of an investigation.

• Auditing is compulsory for every organisation. Whereas, the investigation process is discretionary in nature. The act of auditing verifies the truth and presents an unbiased perspective of the financial statement of the organisation whereas Investigation is performed to establish a fact.

• The appointment of an auditor for auditing purposes is made by the mutual decisions of the shareholders of the company. However, an investigator is solely appointed by the owners/management or through the involvement of one-third party.

• The scope of auditing is broad, as it attempts to give opinions on various aspects concerning the general financial statement of the firm. Contrary to this, the scope of the investigation is limited as it attempts to answer only those questions whose answers are being actively searched for, by the company through its engagement letter.

Conclusion

We can now conclude that auditing is a general annually performed process, common for all organisations. Auditing can be performed with the help of an internal auditor or an external auditor. The internal auditor is himself an employee of the company who is appointed by the management while the government appoints the external auditor.

Investigative processes are quite rare, as it is not commonly performed in any organisation. For an investigation, an expert team must be constituted from outside of the organisation to conduct and report its investigative findings.