Finance is the most crucial function or department in every organization and acts as a strong pillar for their success. Any wrongdoing in finances leads to disastrous results or even fatality to business. To make sure it runs smoothly, there are sub-categories of activities that are defined under the umbrella of Finance i.e. Accounting & Auditing.
But many people do get confused between them and treat them alike activities or procedures. However, they both are very much different in their scope of work and operability.
Accounting vs Auditing
The difference between Accounting and Auditing is that accounting means to maintain the financial statements of a company while auditing means to check whether the financial statements maintained by the company are accurate. Accounting is conducted for daily transactions while auditing is conducted quarterly or annually.
Accounting refers to the process of keeping the updated records for every financial transaction i.e. sale or purchase of any item and preparing the requisite financial statements.
Whereas Auditing is the process where financial statements prepared under the accounting process are used to analyzed & assessed to verify whether they are correct or not.
Also, steps are taken in Auditing to reach an opinion on whether these financial statements are prepared according to the reporting and legal framework which is specifically defined for preparations & presentations of financial statements.
Comparison Table Between Accounting and Auditing
|Parameter of Comparison||Accounting||Auditing|
|Definition||Accounting is the process by which day-to-day monetary records of the organizations are maintained and are further utilized to prepare the financial statements. These financial statements give a true picture of business health.||Auditing is the process of a comprehensive evaluation of the financial statements or records prepared under the accounting process. The main purpose is to verify the reliability of the financial statements.|
|Initiation||Accounting takes the input from the books of account or bookkeeping i.e. daily transactions that involve sale or purchase of something and then utilize them to prepare financial statements of the organization.||Auditing starts when accounting work is completed. The financial statements prepared by the accounts function are verified to check the accuracy, completeness, and trustworthiness.|
|Mode of Operation||Daily i.e. continuous process||Periodic i.e. quarterly or yearly|
|Scope||Current: The scope of work involves the creation of current year financial statements.||Past: The scope of work involves validating the past financial statements.|
|Objective||The main objective of Accounting is to assess whether a company has earned profits or suffered losses, thus establish the current financial position of the organizations for that particular period.||The main objective of Auditing is to verify the correctness of the organization’s account and financial statements, thus certain or certify that they exhibit the true view.|
|Level of Detail||Very detailed as every financial transaction need to be captured||Sample-based|
|Key Deliverables||Financial statements e.g. Income Statement or statement of Profit & Loss, Balance Sheet, Cash Flow Statement, etc.||Audit Reports|
|Performed By||Carried by Bookkeepers and Accountants (internal employees of the organization)||Qualified Auditing agency or auditors (external & independent to the organization)|
|Regulated or Governed By||Regulated by Accounting Standards that are issued by Accounting Boards of the specific country, and which need to adhere while preparing the financial statements.||Regulated by Auditing Standards that are issued by Auditing Boards of the specific country and also certain international compliance laws that need to adhere while auditing the financial statements.|
|Reports Submission||To the management of the organization||To management, the board of directors, and shareholders|
What is Accounting?
Accounting also referred to as the language of business as every business is measured in terms of certain figures or numbers and these numbers are prepared by the means of accounting.
In simple terms, accounting can be well understood with the help of following questions that gives specific numbers,
- How many goods are sold in this current month or quarter or year?
- What is the total cost incurred in this month or quarter or year?
- Is the company is running in loss or earning profits?
- What proportion of profit or loss incurred as compared to the total cost or sale?
- What is the strength of the workforce or employees in the organization?
- What is the current market share of the organization?
- What is the exact profit margin as a whole and from each outlet?
What is Auditing?
Auditing is the process of checking, verifying, and evaluating the financial statements of the organization. As financial statements are prepared with the help of accounting records, thus auditing also covers the checking of those accounting records on a sample basis.
It assesses the reliability and validity of the accounting information of the organization that is represented by the means of financial statements. Auditing starts when the process of financial accounting is completed and financial statements are prepared for the given year. Auditing can be termed as a post-mortem activity.
It is internal i.e. done by internal employees as well as external i.e. done by certified external auditing agency or an independent auditor. But external auditing is the actual assessor.
Main Differences Between Accounting and Auditing
Accounting and Auditing both are essential and critical for every organization and plays a decisive role.
The key difference between the two is,
- Accounting is a continuous process where the focus is to accurately record the financial transactions daily and then prepare the financial statements. Whereas Auditing is an independent activity and conducted quarterly or annually. Auditing involves a critical evaluation of the financial statements of the organization and providing an unbiased opinion on accuracy.
- Accounting is done by an internal employee i.e. bookkeeper or an accountant, whereas Auditing is done by an external agency or an independent auditor.
- The focus of accounting is on current financial information, whereas auditing use past financial records and statements. Auditors ensure the internal controls are intact and no falsification is there.
Frequently Asked Questions (FAQ) About Accounting and Auditing
What is the relationship between accounting and auditing?
Tricky relationship in between an Audit and Account professional:
- Accounting is the practice of recording, preparing, as well as preserving the everyday economic dealings of a business whereas auditing deals with assessing and looking at the transactions
- An auditor proceeds the work of an accountant so as to make it error-free.
- Accountants are interested in monitoring the expenditures, as well as earnings sustained to individuals and organizations, whereas auditors guarantee whether the accountants have actually executed their jobs truthfully and accurately by inspecting their documents.
What is the difference between chartered accountant and auditor?
Following are the difference between chartered accountant and auditor:
- An auditor is a person that focuses on the area of bookkeeping. Chartered accountants are accountants for hire.
- Auditors require to ensure that all transactions comply with the guidelines stated in the regional and government law. Chartered accountants require to supply trustworthy info about monetary records.
- A chartered accountant has more possibilities compared to auditors.
How difficult is accounting?
- Strength of the training courses, as well as rigorous topics: accounting courses are strenuous, as well as most trainees, find themselves in challenging research studies to prepare themselves well, taking diverse courses in business, bookkeeping, business economics as well as mathematics. For instance, initial years of university for accounting professional majors are invested in algebra, calculus, company stats, as well as elementary.
- Time administration: Audit majors because of the nature of audit coursework need to prepare themselves for extreme time monitoring as a result of the ever-boosting workload.
- Organizations as well as clubs. With time nearly limited, as well as work definitely heavy for accounting majors, lots of assistance is given by varied companies, as well as clubs both for local, as well as international trainees. Mentorship is offered by means of strong graduates, as well as other audits, as well as investment specialist societies.
What are the two types of auditing methods?
Audits are typically categorized into two types:
- Statutory audits: These audits are done in order to report the condition of financial resources of a company, as well as accounts to the government of India.
These types of audits are carried out by certified auditors that are functioning as outside, as well as independent parties.
- Internal audits: Internal audits are performed at the bequest of internal administration in order to examine the wellness of a business’s funds and evaluate the functional efficiency of the organization.
Internal audits might be carried out by an independent party or by the firm’s very own interior team.
How an audit is conducted?
The following audits tools would be called for to perform an inner audit:
- Interior Auditor(s).
- Audit list.
- Audit strategy.
- Audit routine.
Executing Internal in 6 steps:
- Know what and also when to audit.
- Produce an audit routine.
- Pre-planning the scheduled audit.
- Carrying out the Audit.
- Recording the findings.
- Reporting the findings.
Accounting and Auditing go hand-in-hand and inter-related to each other. The job which is done or completed by the accountant is verified and certified by the auditing agency or independent auditor.
To start auditing, the basic framework of accounting needs to be established by the organization. The reliability of the financial statements is assessed by auditors and they add more value to it.
They also work together when an organization wants to set stringent and effective accounting processes. An auditor can test the accounting controls & measures designed and implemented by an accountant. Auditors can help to identify the control gaps and high-risk areas and suggest process improvement for better risk management.
To put in simple terms accounting is the process of keeping track of financial data or information while auditing is the process of making sure that these financial records are authentic and are free from material misstatements.
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