When it comes to accounting vs auditing, the terms are often used interchangeably, but the differences between these two disciplines can have a major impact on whether a company follows good financial practices.
Accounting and auditing are two fields of finance, but they differ in the way each one performs its operations.
Accounting and auditing work with the financial statements of a business and ensure compliance with regulatory standards and accuracy. While accountants prepare financial statements, including statements of cash flows, income statements, and balance sheets, an auditor is responsible for evaluating the correctness of it all.
Apart from this, an accountant and an auditor have to look into a gamut of more duties and responsibilities. In this post, let’s figure out the true meanings of accounting and auditing.
Beyond this, if you are confused between these two concepts, you will find a thorough differentiation between accounting and auditing.
What is Accounting?
Accounting is known as a process of recording, categorizing, summarizing, and understanding financial statements and transactions to comprehend a company’s financial position. It is also called the specialized language of business as it helps understand an entity’s economic activities.
Accounting is an act of methodically capturing daily money transactions and classifying them into various groups. And then, they are summarized in such a way that they can be referred to easily during an emergency.
One of the primary functions of accounting is to offer material information, specifically the one that is financial in nature, as it helps in decision-making. Accounting is further divided into various types, such as:
- Cost accounting
- Social responsibility accounting
- Management accounting
- Human resource accounting
- Tax accounting
- Financial accounting
Some of the fundamental objectives of accounting are:
- To keep a proper record through trial balance, journals, ledgers, and subsidiary books
- Determining results through maintained records
- Providing required information pertaining to liquidity and solvency position
- Displaying the company’s financial position through balance sheets
What is Auditing?
Auditing is the process of evaluating a company’s financial records, such as statements and transactions, to figure out discrepancies during the accounting process. Not just that, auditing also helps in verifying the correctness of records.
It is an unbiased, critical investigation of every part of the transaction, be it account books, receipts, vouchers, or anything relevant. Also, frauds and errors or purposeful manipulations in accounts can be discovered through detailed auditing.
The auditor is liable for inspecting the transparency and accuracy of the financial information. Also, they comply with accounting standards and figure out whether taxes have been paid adequately.
Once this thorough inspection of financial records and accounting books is completed, the auditor prepares a report with their opinion. There are basically two types of auditing reports:
- Unmodified
- Modified
- Qualified
- Disclaimer
- Adverse
Auditing can be of two diverse types, such as:
- Internal Auditing: It is conducted by an auditor hired in-house by the company’s management.
- External auditing: It is conducted by auditors who work outside of the company, and the company’s shareholders hire the auditor.
Similarities Between Accounting and Auditing
If you look closely, you will find that many fundamental processes in these two fields are quite similar. Some of them are:
- Both accounting and auditing require knowledge of accounting basics and principles.
- These procedures are executed by people who hold an accounting degree.
- They are important procedures and techniques of analysis, bookkeeping, and computation that help compile financial statements and reports.
- Generally, the process for activities in auditing and accounting, like tax compliance, is the same.
- They both have the same methods for bookkeeping, like accrual and cash basis.
- Their goal is to make sure financial statements and records are prepared with utmost accuracy and that they offer a fair understanding of the company’s financial position.
Difference Between Accounting and Auditing
To understand the concepts of accounting vs auditing comprehensively, below mentioned is a thorough table of differentiation:
Wrapping Up
Undoubtedly, both accounting and auditing are specialized fields. However, the auditing scope is much wider than accounting as it requires a profound understanding of several tax rules, acts, accounting, and auditing standards along with fundamental communication skills.
Along with this, individuality, uprightness, honesty, and discretion are some of the basic requirements that must be maintained when performing the process of auditing. The reports that an auditor submits turn out to be helpful for varying end-users, including government, customers, debtors, suppliers, investors, shareholders, creditors, and more, for adequate decision-making.
As far as accounting is concerned, it is no less either, considering that it needs all-inclusive knowledge of assumptions, conventions, principles and standards, tax laws, and Companies Act rules. Moreover, since auditing is based on competence in accounting, it cannot be taken for granted either.
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