Accounting, as the art and science of systematically recording financial transactions, is a vast and diverse discipline. A lot of interrelated cogs work together to run the wheel of accounting. In order to make the best use of any accounts course, it is imperative to understand all of them properly. Today we deal with two of them – Accounting and Auditing.
Let’s start with the bookish definition, shall we?
Accounting is the collective process of capturing, classifying, summarizing, analyzing and presenting the financial transactions, records, statements, profitability and financial position of an organization or entity. Accounting is the specialized language of business. Accounting is categorized in various branches like cost accounting, management accounting, financial accounting, etc.
Auditing refers to the careful examination of the financial records of a business organization. It is compulsory for all separate legal entities. Auditing is carried out after the final preparation of the financial statements and accounts. Auditing has two main categories viz. internal audit and external audit.
You might be asking “Hey, where’s the fuss? This is this and that is that”. But hold on, many students enrolled in accounts courses often confuse the two as they are similar in some respects.
Accounting and auditing are similar in many respects.
Both accounting and auditing need a thorough knowledge of accounting basics and principles.
Both of these are generally done by people with an accounting degree.
Both processes use essential procedures and techniques of book-keeping, computation, and analysis.
Both accounting and auditing aims to ensure the financial statements and records provide a fair reflection of the actual financial position of an organization.
But there are plenty more differences which you should be aware of, in order to make the most bang for your buck in any accounts course that you may enroll in.
Let’s break down the differences with respect to various criteria and understand one at a time.
The primary objective of accounting is to determine the financial position, profitability, and performance.
The main objective of auditing is to add credibility to the financial statements and reports of the company.
The main focus of accounting is how to accurately record and present all financial transactions and statements on time.
Auditing, on the other hand, focuses on verifying the accuracy and reliability of the financial statements and to judge whether the financial statements provide a true picture of the actual financial position of the entity.
The scope of accounting is determined by the management of the company whereas the scope of auditing is determined by the relevant laws or regulations.
Accounting starts usually where book-keeping ends.
Auditing always starts where accounting ends.
Accounting is governed by Accounting Standards with some degree of discretion.
On the other hand, auditing follows Standards on Auditing.
Observation: Auditing Standards are not as flexible as the Accounting Standards.
Accounting lays emphasis on the current financial transactions and activities.
Auditing concentrates on the past financial statements.
Accounting covers all transactions, records, and statements having financial implications whereas auditing mainly covers final financial statements and records.
Accounting is carried out on a continuous basis with a daily recording of financial transactions.
Auditing is a periodic process. It is generally carried out after the preparation of final accounts and financial statements on a yearly basis.
Accounting is very detailed and captures all details related to financial transactions, records, and statements whereas auditing generally uses financial statements and records on the basis of samples.
Accounting involves checking and verifying details related to all financial statements and records.
Auditing may be carried out through sample checking or test checking. Not every financial statement needs to be checked to arrive at a conclusion.
Tip: Think of the rice cooking analogy in the case of Auditing.
Accounting is performed by accountants. Auditing is performed generally by qualified auditors.
Accounting in most cases is performed by an internal employee of the company.
Auditing is carried out by an external independent person or agency.
An accountant is appointed by the management of the company. An auditor is appointed by the shareholders of the company or a regulator.
An accountant can be removed by the management. An auditor can be removed by the shareholders themselves.
The Accountant’s liability or accountability generally ends with the preparation of the accounts
But the auditor has some liability even the after preparation and submission of the audit report.
Accounting prepares financial statements e.g. Income Statement or P/L, Balance Sheet, Cash Flow Statement, etc.
The findings of the auditing process are shared in a document called an Audit Report.
Accounts are submitted to the management of the organization. In contrast, the Audit report is submitted to the shareholders.
An accountant does not or need not attend the AGMs or Shareholders’ meeting.
But an auditor may be required to attend the AGMs.
On a concluding note, it can be said that Accounting and Auditing both are specialized fields, but the scope of the latter is wider than the former. Auditing needs a thorough understanding of various Acts and Tax rules. In addition, auditors need to be very familiar with auditing and accounting standards. A quality accounts course generally contains study modules for all of these.
However, they do complement each other in some respects. Accountants can learn from the professional knowledge of an auditor and implement the best practices in their accounting work. An Auditor may get help from the accountants for a thorough knowledge of the accounting system of an organization and technical aspects of the business.
Fascinated by Accounting careers? Wait no more, check our Industry-ready accounts course now!