Accounting vs Auditing
Both the considered terms are business-related terms, very important for the functioning of corporate firms, companies, and various organizations. For smooth operations, businesses keep huge bulks of recorded data (produced by Accountants) and analytical reports (produced by Auditors).
Accounting is the foundation or baseline for Auditing. The major difference between Accounting and Auditing lies in the very definitions of these terms.
Accounting is a process of strategically organizing and presenting raw data collected by the bookkeepers on daily basis to examine the financial position of a business and to facilitate data study, data interpretation, and data analysis whereas Auditing is the actual process of analyzing financial statements that have been refined by the accounting agents to examine the allocation of resources and compliance of financial norms and laws.
Comparison Table Between Accounting and Auditing (in Tabular Form)
|Parameter of Comparison||Accounting||Auditing|
|Definition||Process of strategic planning, organizing, and presenting of records of data.||Process of producing highly analytical reports based on Business' data.|
|Type of Economics involved||Since the records just produce facts and are not passing any value judgment, the process is under Positive Economics.||Since the reports produced are analysis of facts and provide value judgments, the process counts under Normative Economics.|
|Inputs used||Records of the Bookkeepers.||Records of the Accountants.|
|By whom?||The process is undertaken by Accountants. No specific and high qualifications are required.||The process is undertaken by Auditors. Very high qualifications and specific and deep knowledge are required for analysis.|
|Aim||The aim is to produce accurate records to make data more interpretable and to determine the financial position and profitability of a company.||The aim is to produce reports to examine adherence to financial norms and efficiency in the usage of Resources. It also verifies if the real financial position matches the Accountant's records.|
|Beginning of the process||It begins where Bookkeeper’s business ends.||It begins where the Accountant’s business ends.|
|Period||It is a continuous process and is undertaken daily. It caters to the current transactions and records.||It is a periodic process. It uses records to establish the abidance of rules and regulations.|
|Coverage||Accountants use all final and intermediate financial transactions.||Only the final records are taken into account.|
|Level of Details of records used||Highly detailed records used.||Only a few sample records considered.|
|Appointment of agents||The accountant is appointed by the Management to enhance day-to-day functioning.||Auditors are appointed by the third party, for example, Shareholders, to keep a check over the functioning.|
|Independency||This process is closely and regularly examined by the management.||This process is carried on independent of the management.|
|Necessity||This process is necessary to increase the efficiency of everyday activities.||This process is necessary to maintain trust between the company and the various stakeholders.|
What is Accounting?
Accounting is the process of preparing detailed but concise financial statements after strategically analyzing and interpreting the raw records produced by the Bookkeepers. This process is initiated and closely examined and regulated by the Management to keep a detailed record of all transactions of the business to ensure smooth and efficient operations.
These records also become important when the need arises to cross-check financial assets and liabilities to determine the financial position of businesses. While basic accounting can be done without many qualifications, advanced accounting can be done only by professional Chartered Accountants.
Sizable firms have special finance departments shouldered with the responsibility of the accountancy in entirety. These departments work regularly, producing huge bulks of records and easily interpretable data, and determining the financial profitability of the business.
Various types of Accounting are:
- Financial Accounting: The process to produce an interim and annual financial statements.
- Managerial Accounting: The process to generate monthly and quarterly reports that help make informed business decisions regarding management.
- Cost Accounting: The process to produce records of costs to facilitate informed decisions of costing and pricing.
What is Auditing?
Auditing is the process of careful examination and evaluation of the degree of correspondence between the records and the established criteria. It involves a thorough analysis of the financial statements and is undertaken by an independent auditor appointed by the stakeholders or shareholders.
This process is essential to induce trust between the management and the stakeholders by examining the authenticity of the Accountant’s report.
The most common accounting standards that are accepted worldwide are set by US GAAP (General Accepted Principles of Accounting). The principles are widely known by the public.
The Auditor evaluates statements against these accounting criteria and his work culminates with an Audit Report. There are two types of Audit.
External Audit: This is done by public accountants who take up different clients and shoulder the responsibility of Audit with an engagement team.
Internal Audit: This is done by the employees of the company itself to ensure that the processes of bookkeeping and accountancy go on smoothly. This is done to make the external audit more feasible.
Usually only very large scale firms carry out internal audits. In India the Auditing Standards Board (ASB) issues Statements on Auditing Standards. For internal audit, the Institute of Internal Auditors lays down some conceptual framework called the International Professional Practices Framework (IPPF)
Main Differences Between Accounting and Auditing
- Accounting is done for easing the daily functioning of business while Auditing examines how far is the business running per the rules, regulations, and laws.
- Accounting is a continuous process that begins where Bookkeepers’ duty end. Auditing is a periodic process and begins where the duty of the Accountant end.
- Accounting is initiated by the Management while Auditing is initiated either by a rule of law or the stakeholders.
- Accountants need not have very high qualifications but Auditors have to be highly qualified and professional.
- Accountants regularly report to and are checked upon by the management whereas Auditors work Independent of the Management.
Although both the considered terms are similar, one must be very careful in distinguishing between them. Both the terms are related and go hand in hand. Auditing has a wider scope and Accounting a narrower scope. Auditors must be well versed with the Accounting Principles to make a perfect audit report and Accountants must be aware of the rules and regulations to make the records feasible for Audit.
Word Cloud for Difference Between Accounting and Auditing
The following is a collection of the most used terms in this article on Accounting and Auditing. This should help in recalling related terms as used in this article at a later stage for you.