Accounting and Auditing, both these terms are very commonly used in organizations.
While most of the people think these terms are the same and relate these terms to the financial records and financial statements of organizations, they are missing the point that these two terms are entirely different from each other.
Accounting is a process of collecting, analyzing all the records and transactions which includes profit statements of an organization.
Auditing is a process of validating the financial statements and accounts of an organization.
The key difference between Accounting and Auditing lies in the fact that the accounting process is done all through the year in an organization.
This means that accounting is a continuous process whereas auditing is done in an organization at the end of the financial year after financial statements of an organization are prepared.
Accounting in an organization is done by the employees of the company whereas auditing is done by a separate entity.
Comparison Table Between Accounting and Auditing (in Tabular Form)
|Parameter of Comparison||Accounting||Auditing|
|Definition||Accounting is a process in an organization which includes maintaining the financial records of the company which helps in preparation of financial statements of the company.||Auditing means that once the financial statements are prepared, it is a process of checking the statements and accounts of the organization.|
|Time||Accounting is done on a continuous basis throughout the year.||Auditing is done once a year after the balance sheet and profit & loss statement is prepared.|
|Detail||Accounting keeps track of all the financial transactions and it is very detailed as compared to auditing.||Level of detail in auditing is less as it verifies the statements after it has been prepared.|
|Implemented by||Accounting in an organization is carried by the accountants of the company.||Auditing is carried by the qualified auditors.|
|Agency||Accounting is done by the employees of the organization||Auditing is done by the separate legal entity.|
What is Accounting?
Accounting is a very critical component of an organization, which plays an important role in understanding the financial performance of the company.
It is a process which records day to day financial transaction of an organization and separates them into multiple groups.
These records are kept into multiple groups in a way so that it can be referred at any time if an organization needs them.
Accounting also plays a role in analyzing the statements of the company and tells the financial performance of the organization to all the stakeholders.
Various objects of accounting in an organization are:
- Accounting helps in revealing the financial performance of the company to the shareholders and stakeholders of the company.
- It also helps in understanding the profitability of the company with the help of transactions recorded throughout the year and its profit & loss statements.
- It helps in revealing the cash flows, assets, and liabilities of an organization to the stakeholders.
Some of the various fields of accounting are financial accounting, cost accounting, and management accounting, etc.
Financial accounting is done in order to prepare the balance sheet and Profit & Loss statements of the company and these statements are forwarded to the external stakeholders of the company.
These statements are prepared according to the GAAP accounting standards.
What is Auditing?
Auditing is a process which is carried out in an association for confirming the financial statements of an institute. Auditing is done at the end of the financial year.
It is usually carried out by the legally separate entity with the aim of giving a fair view of the organization to the shareholders and stakeholders.
Auditing is the validation of every book of records of the organization in order to verify the fairness of the financial statements published by the organization at the end of the financial year.
Sometimes there are fraud data added into the financial statements to mislead the shareholders and attract more investors. These fraud cases can be caught with the help of auditing.
Auditors usually check if the organization followed the accounting standards while maintaining the book of records or not.
They also verify if the organization is paying complete taxes to the government of the country.
After the complete, the validation of financial statements and record books of organization, the auditing firm provides audit reports as an output of auditing.
Audit reports released by auditors are of two types i.e. modifies and unmodified.
Main Differences Between Accounting and Auditing
Although both are methods of maintaining and validating the financial records there exist a lot of differences between accounting and auditing when it comes to time and agency.
- Accounting is a process that is carried out throughout the year whereas auditing is done at the end of the financial year.
- Once the book of records is prepared after that accounting starts in an organization whereas auditing is done after the accounting is completed.
- Accounting is done by the internal employees of the organization like accountants whereas auditing is done by separate legal firms.
- Accounting can be done by any person for which any specific qualification criteria are not there whereas, for auditing, it is mandatory for an auditor to have a proper qualification.
How to Remember the Difference Between Accounting and Auditing
Time Needed : 2 minutes
Remembering the differences is very simple, just follow our mind mapping guide given below:
- Associate the first word with a thing or item which you see daily
For e.g.: Middle line in letter H for Horizontal
- Associate the second word with a thing or item which you see daily
For e.g.: The two lines in letter V for Vertical
- Recall the two words daily two times
During morning and evening bring up the two words in front of you and then recall the things that you had associated with each word.
- Repeat for 7 days
Repeating this process for a week will help you remember the difference between words for a long time
Frequently Asked Questions (FAQ) About Accounting and Auditing
- What are the types of audits?
There are many types of audits that are done by the inspection team or the head organization.
The financial audit, statutory audit, compliance Audit, and operational audit are some of the examples to name a few.
- What are the different types of auditors?
An auditor is a person who comes and inspects whether the process of functioning of a company is working properly or not.
A person can be a criminal auditor, financial auditor, accounting and computer science, Data Analytics and a law auditor.
- How do you start an audit?
The first step of the audit is to make the plan and then assessing the changes in the activities of the organization.
Then the auditor learns from the past data and forms a questionnaire that needs to ask from the employees of the organization.
- What is a Stage 1 audit?
In stage 1 of the audit, the auditor will review the management system and also the information is documented and also evaluate the site-specific conditions.
- How is maths used in accounting?
Accounting is basically maintaining the inward and outward entries of any transaction.
Maths is used in accounting as a means to numerical defect how much amount of material or money came in and how much was utilized during the course of the time and then what is the balance amount that is remaining.
- What makes a good accountant?
A good accountant is one who has the will to learn constantly and also is ethical in nature. He is the master of his field and also as a good team player apart from a good leader.
- What are the basic accounting skills?
The basic accounting skills requires the good use of maths.
Apart from the maths, the person should have a good logical aptitude so as to maintain the records and balances.
Also, a person should be good with analysis for having good accounting skills.
Learn More With the Help of Video
Both processes i.e. accounting and auditing are having an objective that organization records and presents the error-free financial statements to shareholders but the scope of auditing is large as compared to accounting.
In order to carry forward accounting, complete knowledge of accounting standards are mandatory. But in auditing, there is more knowledge required in terms of auditing standards, laws related to taxes, etc.
It doesn’t matter in which industry your organization is performing; what matters is you start with accounting which is followed by the auditing.
It is really critical to have an idea of all the expenses and costs that are involved in these processes.
But all in all both accounting and auditing processes are great ways for ensuring both shareholders and stakeholders that your company is functioning ethically.
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.