Both accounting and auditing are terms of finances. Even having both similarities and differences, both terms cannot be used at the place of each other. Both accounting and auditing are important processes of businesses.
The accounting process is followed by the auditing process. Accounting is used by organizations to make the records of their all monetary transactions. It is an important process in the business because accounting is the base of the financial statement that is prepared at the end of each financial year.
On the other hand, auditing is done to verify and evaluate accounts to check whether there is any in the financial books. Hence, it can be said that the auditing process ensures that whether the information is reliable and authentic or not.
In this article, you will learn about both accounting and auditing processes and also learn about the difference between them in tabular form.
What is Accounting?
The role of accounting is to keep track of the day-to-day financial activities of an organization, to record them, and to generate a report.
Accounting is called financial language, which helps the management understand all the financial activities taking place in an organization. The accounting process in an organization works based on general laws of accounting and Generally Accepted Accounting Principles (GAAP).
There are different boards to govern accounting processes in organizations. For example, in the United States of America, the Governmental Accounting Standard Board (GASB) and Financial Accounting Standard Board (FASB) governs all the accounting activities organizations.
All financial transactions in an organization are recorded in such a way so that they can be easily referred to whenever the need arises. The information obtains by accounting processes is helpful in making an important decision related to the organization.
For example, the management of an organization can take the decision to invest in the production of a particular product by referring to the profit/loss statement.
There are various fields in accounting, which are Financial accounting, Tax accounting, Management accounting, Cost accounting, social responsibility accounting, and Human resource accounting.
What is auditing?
In the auditing process, all the statements generated during the accounting process are checked, evaluated, and verified. Accounting reports consist of day-to-day financial transactions took place in an organization.
The auditing process verifies whether the information recorded in the reports is accurate or not.
Auditing is conducted by the shareholders of an organization. The final report of the auditing report provides information on whether the accounting reports of the organization were accurate or not.
Auditing is a thorough process of examining even the smallest entity such as receipts, vouchers, accounting books, and all financial reports and the information mentioned in financial reports and all the information obtained by examining all entities is compared, and results of the whole process is recorded in the auditing report, which is finally presented to the shareholders of the organization.
All the misconception, errors, and wrong information in the reports can be detected by the detailed analysis. In addition to this, the auditor will also check whether the taxes were paid timely and accurately or not.
Auditing can be of two types
1) External Auditing:
The external auditing is performed by the auditors of external agencies. The external auditing is performed to fulfill the statutory requirements as per the auditing laws of a country.
In most countries, there is a law that all organizations must get auditing done from external agencies annually.
So that the financial statements which are made public by the organizations for investors and shareholders can be reliable. However, in some organizations, external auditing is conducted as per the orders of court because of the doubts of fraud.
2) Internal Auditing:
Internal auditing is asked to be performed by the management of the organization. It is conducted by the employees of an organization. Internal auditing is conducted to learn about the various processes taking place in the organization and to learn about the possible risk with each process.
The information obtains from the internal auditing process is used to take precautionary steps for the processes and to fill in the gaps in the financial reports.
Difference between Accounting and Auditing: A Table of Comparison
|Accounting means keeping the record of all financial transaction took place in an organization to generate a financial statement at the end of the financial year.||Auditing means evaluating and verify the financial statements generated to verify the validity of the accounting.|
|Accounting begins after the bookkeeping process’s ending.||Auditing after the end of the accounting process.|
|. Accounting is a regular process as a financial record of transactions needs to be recorded every day.||Auditing is a periodic process. the process of auditing starts once the final accounts are ready.|
|Accounting covers all transactions which have financial implications.||Auditing covers only the final transactions.|
|Accounting focuses only on current activities and financial statements.||The focus of auditing is on past statements of accounting.|
|Smallest detail related to financial transactions is recorded.||. Analyze information recorded in a financial statement on a sample basis.|
|All the activities are governed according to the accounting standards.||All the activities are governed on the basis of auditing purposes.|
|Accounting is performed by the accountants of the organization.||Auditing is performed by the auditors.|
|Accounting is performed by an employee of the organization.||Auditing is performed by an external person.|
|The accountants must have done accounting course and have the knowledge to use accounting software.||The auditors must have done “Chartered Accountants (CA) course.|
|An accountant is hired by the management of the organization.||An auditor is hired by the shareholders of an organization.|
|An accountant works on salary.||An auditor takes auditing fees.|
|The remuneration of an accountant is decided by the management of an organization.||The remuneration of an auditor is decided by the shareholders.|
|The role of an accountant is important in the day-to-day activities of an organization.||The role of an auditor is not required in the day-to-day activities of an organization.|
|An accountant is responsible for creating financial statements such as income statement, cash flow statement, and profit-loss statement.||An auditor is responsible for delivering auditing report only.|
|The final reports generated are submitted to the management of the organization.||The final auditing report is submitted to the shareholders of the organization.|
|An accountant is responsible for creating the accounting report and his responsibility ends with it.||An auditor is responsible for creating and explaining auditing report to shareholders and his responsibilities end with it.|
|An accountant is not required to attend shareholders’ meeting.||An auditor must attend the shareholders’ meeting.|
To conclude, we can say that both accounting and auditing are important processes of an organization. The role of both auditors, as well as the accountant, is critical for all organizations.
As accounting keeps the record of all the day-to-day financial activities of an organization and generates financial reports such as income statement, cash-flow statement, and profit/loss statement, which referred by management and shareholders of the organization to make an important decision such as where to make the investment, etc.
On the other hand, auditing is the process to verify the information written in the financial reports. Reports generated by the auditing process are helpful for shareholders, investors, suppliers, debtors of an organization to make decisions to invest in the organization and prove the credibility of the organization.
The accounting process is a continuous process, and the auditing process begins after the accounting process to verify the reports generated by the accountants. However, no process cannot be neglected.