We explain that what is the difference between accounting and auditing with table. Finance is the most important function or department in any organization and acts as a solid pillar for its success. Any irregularity in finances leads to disastrous results or even business death. To ensure that it runs smoothly, there are subcategories of activities that are defined under the Finance umbrella, that is, Accounting and Auditing.
But many people confuse each other and treat them as activities or procedures. However, both are very different in their scope of work and operability.
Accounting vs Auditing
The difference between accounting and auditing lies in the fact that accounting means maintaining the financial statements of a company, while auditing means checking whether the financial statements maintained by the company are accurate. The accountant performs daily accounting of current financial transactions, while the auditor performs a quarterly or annual audit for past financial statements.
Accounting refers to the process of keeping up-to-date records of each financial transaction, that is, the sale or purchase of any item and the preparation of the necessary financial statements.
While Accounts review is the process where the financial statements prepared under the accounting process are used to analyze and evaluate to verify whether they are correct or not.
In addition, steps are taken in the Audit to reach an opinion on whether these financial statements are prepared in accordance with the legal and reporting framework that is specifically defined for the preparation and presentation of financial statements.
Comparison table between accounting and auditing
Comparison Accounting Audit Parameter
| Definition | Accounting is the process by which organizations’ daily monetary records are kept and subsequently used to prepare financial statements. These financial statements provide a true picture of corporate health. | The audit is the process of a comprehensive evaluation of the financial statements or records prepared under the accounting process. The main objective is to verify the reliability of the financial statements. |
| Initiation | Accounting takes the information from the accounting books or bookkeeping, that is, the daily transactions that involve the sale or purchase of something and then uses them to prepare the financial statements of the organization. | The audit begins when the accounting work is completed. The financial statements prepared by the accounts function are verified for accuracy, completeness and reliability. |
| Operation mode | Daily, that is, continuous process | Periodic, that is, quarterly or annually |
| Scope | Current: The scope of work involves the creation of financial statements for the current year. | Past – Scope of work involves validating past financial statements. |
| objective | The main objective of Accounting is to assess whether a company has made profits or suffered losses, and thus establish the current financial situation of the organizations for that particular period. | The main objective of the Audit is to verify the accuracy of the account and the financial statements of the organization, in this way accurate or to certify that they exhibit the true vision. |
| Level of detail | Very detailed, as it is necessary to capture all financial transactions. | Based on samples |
| Key deliverables | Financial statements, for example, income statement or profit and loss statement, balance sheet, cash flow statement, etc. | Audit reports |
| Interpreted by | In charge of bookkeepers and accountants (internal employees of the organization) | Qualified audit agency or auditors (external and independent to the organization) |
| Regulated or governed by | Regulated by Accounting Standards that are issued by the Accounting Councils of the specific country, and that they must comply with in the preparation of financial statements. | Regulated by the Auditing Standards issued by the Audit Boards of the specific country and also by certain international compliance laws that must be complied with when auditing the financial statements. |
| Sending reports | To the organization’s management | To management, the board of directors and shareholders |
What is Accounting?
Accounting is also known as the language of business, as every business is measured in terms of certain figures or numbers and these numbers are prepared by means of accounting.
In simple terms, accounting can be well understood with the help of the following questions that give specific numbers,
- How many goods are sold in this current month, quarter, or year?
- What is the total cost incurred in this month, quarter, or year?
- Does the company make a profit or a loss?
- What proportion of the profit or loss incurred compared to the total cost or the 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 for each point of sale?
What is the Auditing?
Auditing is the process of verifying, verifying and evaluating the financial statements of the organization. As the financial statements are prepared with the help of accounting records, the audit also covers the verification of those accounting records on a sample basis.
Evaluates the reliability and validity of the organization’s accounting information that is represented by the means of financial statements. The audit begins when the financial accounting process is completed and the financial statements for the year in question are prepared. The audit can be called a post-mortem activity.
It is internal, that is, performed by internal employees and external, that is, performed by a certified external audit agency or an independent auditor. But the external audit is the real evaluator.
Main differences between accounting and auditing
Both accounting and auditing are essential and fundamental for any organization and play a decisive role.
The key difference between the two is,
- Accounting is an ongoing process in which the focus is to accurately record daily financial transactions and then prepare financial statements. Considering that the audit is an independent activity and is carried out quarterly or annually. The audit involves a critical appraisal of the organization’s financial statements and providing an unbiased opinion on their accuracy.
- Accounting is done by an internal employee, that is, an accountant or accountant, while auditing is done by an external agency or an independent auditor.
- The focus of accounting is on current financial information, while auditing uses past financial records and statements. Auditors ensure that internal controls are intact and that there are no forgeries.
Accounting and Auditing Frequently Asked Questions (FAQ)
What is the relationship between accounting and auditing?
Complicated relationship between an accounting and auditing professional:
- Accounting is the practice of recording, preparing and preserving the daily economic transactions of a company, while auditing deals with evaluating and analyzing the transactions.
- An auditor proceeds with the work of an accountant so that it is free from errors.
- Accountants are interested in monitoring expenses as well as sustained earnings for individuals and organizations, while auditors ensure whether accountants have actually performed their work truthfully and accurately by inspecting their documents.
What is the difference between a public accountant and an auditor?
Below are the differences between public accountant and auditor:
- An auditor is a person who focuses on the area of accounting. Public accountants are accountants for hire.
- Auditors must ensure that all transactions comply with the guidelines set forth in regional and government law. Public accountants must provide reliable information on monetary records.
- A certified public accountant has more possibilities compared to auditors.
How difficult is accounting?
- Strength of training courses as well as rigorous subjects: Accounting courses are strenuous, as well as most apprentices, they are in challenging research studies to prepare well, taking various courses in business, bookkeeping, business economics and math. For example, the initial years of college for professional accounting majors are spent in algebra, calculus, business statistics, as well as elementary school.
- Time Management: Audit graduates due to the nature of auditing courses must prepare for extreme time monitoring as a result of the ever-increasing workload.
- Organizations and clubs. With time almost limited, as well as definitely heavy lifting for accounting specialists, various companies and clubs provide a lot of help for both local and international trainees. Mentoring is offered through strong graduates, as well as other audits, as well as specialist investment companies.
What are the two types of audit methods?
Audits are generally classified into two types:
- Statutory Audits: These audits are conducted in order to report the condition of a company’s financial resources as well as the accounts to the government of India.
These types of audits are carried out by certified auditors who function as external, as well as by independent parties. - Internal audits : Internal audits are performed by legacy of internal management to examine the well-being of a company’s funds and assess the functional efficiency of the organization.
Internal audits can be carried out by an independent party or by the company’s own internal team.
How is an audit done?
The following audit tools would be needed to perform an internal audit:
- Interior Auditor (s).
- Audit list.
- Audit strategy.
- Audit routine.
Execution of Internal in 6 steps:
- Know what and also when to audit.
- Create an audit routine.
- Pre-planning of the scheduled audit.
- Carrying out the Audit.
- Record of findings.
- Report findings.
Final Thought
Accounting and auditing go hand in hand and are interrelated. The work performed or completed by the accountant is verified and certified by the audit agency or the independent auditor.
To begin auditing, the organization must establish the basic accounting framework. The reliability of the financial statements is evaluated by auditors and they add more value to it.
They also work together when an organization wants to establish strict and effective accounting processes. An auditor can test the accounting controls and measures designed and implemented by an accountant. Auditors can help identify control gaps and high-risk areas and suggest process improvements for better risk management.
To put it simply, 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 free from material errors.
