The finance department is the strongest pillar in any business organization. The department determines the fiscal health of the company.
Many companies that experience closure happens due to wrong-doings in the finance office. The disastrous results make the venture crumble.
Accounting and auditing are crucial foundation pillars in the finance department. These activities help to ensure the finance functions are run smoothly.
The close relationship between accounting and auditing usually confuses many learners aspiring to pursue these courses. Accountants and auditors have distinct roles in the finance department.
So, what is the main difference between accounting and auditing? Accounting refers to recording, maintaining, and reporting financial statements whereas auditing refers to a systematic inspection and verification of financial statements maintained by the company.
This article provides further differences between accounting and auditing. The similarities between accounting and auditing will also help you have a deeper understanding of the topic.
Comparison Table (Accounting vs Auditing)
|Meaning||It is the process of recording, maintaining, and reporting financial statements by the company.||It is a systematic inspection of financial statements to verify whether they show a true and fair picture of the company.|
|Purpose||To report the financial position of the business organization.||To verify the reliability of financial statements.|
|Frequency||Continuous process.||Performed quarterly or yearly.|
|Hierarchy||The first step before the beginning of the auditing function.||The second step after undertaking the accounting function.|
|Compliance Requirements||Accounting standards and rules.||Auditing standards and rules.|
|Personnel In-Charge||In-house or outsourced accountants.||Certified external auditors.|
|Key Deliverables||Financial statements.||Audit report.|
|Statutory or external auditing.
|Scope of Work||Accountants are responsible for analytical and operational activities.||Auditors are responsible for analytical and investigative activities.|
|Report Submission||To the management of the enterprise.||To shareholders, Board of Directors, and management.|
|Level of Details||Very detailed since financial transactions need to be captured.||Sample-based.|
|Removal||Accountants are removed by management.||Auditors are removed by shareholders.|
|Professional Misconduct||Accountants are not persecuted for professional misconduct.||Auditors are persecuted for professional misconduct.|
|Shareholders’ Meeting||Accountants do not attend.||Auditors attend the meeting.|
|Guidance||Accountants offer suggestions that help to improve accounting activities and management.||Auditors suggest methods for improving internal control measures.|
|Remuneration Fixation||Accountants’ salary is fixed by management.||Auditors’ fee is fixed by shareholders.|
|Remuneration Type||Salary||Auditing fee|
|Coverage||All transactions, records, and statements have financial implications.||Final financial statements and records.|
|Qualification||No compulsory qualification is necessary for accountants.||There are some compulsory qualifications for auditors.|
|Liability||Preparation of the books of accounts mark ends of accountants’ liability.||Preparation and submission of auditing report mark the ends of auditors’ liability.|
What Is Accounting?
Accounting is the process of identifying, measuring, recording, and communicating economic information to the users to permit informed judgments and decisions.
Accounting does not require a comprehensive understanding of mathematics. But the accountant to learn when to add, subtract and multiply daily transactional figures.
Accounting is typically an act of capturing monetary transactions of an enterprise and summarize them for easy understanding.
The transactional figures are further analyzed and recorded into financial statements to help the interested parties in the organization to make informed decisions.
The main purpose of accounting is to provide material information ideal for determining the financial position of the business.
Accounting Involves the following:
- Keeping proper accounting records in the journals, ledgers, and trial balance sheet.
- Determining the profitability of an enterprise through records maintained in trading and profit and loss accounts.
- Displaying the financial position of an entity through the preparation of a balance sheet.
- Provide crucial information about solvency and liquidation of an entity to interested parties.
What Are the Branches of Accounting?
Below are the main branches of accounting:
It involves maintaining, processing, grouping, and analyzing financial information of the enterprise. The purpose is to provide an accurate and fair view for interested parties.
The branch of accounting help to derive costing price for complex products that entails raw materials, processing, and ingredients during manufacturing.
The branch of accounting focus more on planning and providing support decision. The daily data organization is ideal for chief financial officers, chief executive officers, and managers.
Who Are the Users of Accounting Information?
There are several users of accounting information. Some of the possible users include:
- Managers who make daily enterprise decisions.
- Owners of the business to know and evaluate the profitability.
- Prospect buyers looking to purchase the business organization.
- The bank before providing loans to the business owner.
- Tax inspectors to calculate the tax payable.
- Other users are suppliers, prospect partners, investors, and employees.
What Is Auditing?
Auditing is a systematic verification, inspection, and evaluation of financial statements. The activity helps to determine the reliability of financial statements maintained by the business.
The ancient audit began in 11th C in China and 4th C in Greece. The modern audit evolved in the 19th C since it involves a large sum of money.
Auditing practices keep evolving despite facing some challenges. The office of control general in Britain began practicing auditing in 1857 and the USA started in 1921.
- Verifying whether the financial statements are accurate.
- Verifying the correctness of financial transactions treatment.
- Inspecting the documentary evidence from the books of accounts.
- Verifying whether the accounting standards and rules have been upheld.
What Are the Types of Auditing?
It is an auditing activity carried out by professional certified auditors appointed by the shareholders of the business organization. They verify the financial statements of the organization.
It is an auditing activity carried out by in-house or outsourced professionals who help to verify the internal control measures of the accounting process of the business organization.
Main Differences between Accounting and Auditing
- Accounting is an activity that helps to maintain the monetary records of an enterprise. Auditing checks the financial records and statements maintained by the enterprise.
- Accounting provides a true and fair view of the financial position of the organization. Auditing helps to verify the reliability of the financial statements.
- Accounting types are cost, management, and financial accounting. Auditing types are internal and external auditing.
- Accounting is a continuous process. Auditing is carried out at specific intervals.
- Accounting is in compliance with accounting standards and rules. Auditing is in compliance with auditing standards and rules.
- Accounting can be carried out by either in-house or outsourced professionals. Auditing is carried out by professional certified auditors.
- Accounting is essential in the preparation of financial statements of the organization. Auditing help in the preparation of auditing reports.
- Accounting is the first step prior to beginning auditing activity. Auditing is the subsequent step after undertaking accounting functions.
- The key deliverables of accounting are the income statement, profit & loss accounts, balance sheet, and cash flow statements. Auditing key deliverables are unqualified reports and qualified reports.
- Accounting is performed by accountants and bookkeepers. Auditing is performed by professional certified auditors.
Similarities between Accounting and Auditing
- Both activities need individuals who are Certified Public Accountants.
- Both professionals need analytical and problem-solving skills
- The minimum education requirement is a bachelor degree
- Both activities help to determine the financial health of the company.
- Both operate under the finance department.
Accounting and auditing are professional fields. But auditing has a wider scope when compared to accounting. The auditor needs to understand the various tax rules, acts, auditing standards, and communication skills.
Auditing also requires professionals with a high level of integrity, confidentiality, independence, and honesty when carrying out the activity. The audit report helps the interested parties in the enterprise to make vital decisions.
Accounting needs an individual who understands accounting principles, standards, assumptions, convections, companies act rules, and laws.
The relationship between accounting and auditing is quite strong. Auditing activity will only take place when proper accounting functions have been performed.
The core difference between accounting and auditing is that the former is determines the financial health of an enterprise whereas the latter verify the reliability of financial records maintained by the organization.
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