The Difference Between Accounting and Auditing

What is Accounting? 

Definition of Accounting:

  Accounting refers to the process of capturing, classifying, summarizing, analyzing and presenting the financial transactions, records, statements, benefit and financial position of an organization or entity.

  When accounting process ends, auditing begins, for the purpose of determining the true and fair picture of books of accounts. Accounting is utilized by the firms for keeping a track of their monetary transactions. It is the language the business understands, as it is the tool for reporting financial statement of the business entity.

What is Auditing? 

Definition of Auditing:   

  Auditing involves carrying out the inspection and statutory audit of the financial statements, and giving a fair and unbiased opinion on whether the financial statements and records provide a true and fair reflection of the actual financial position of the firm. The auditors, usually external, carry out the task of auditing under the provisions of the applicable laws on behalf of shareholders or regulators. The scope of auditing work is controlled by the applicable laws.




Similarities 

  Many of the basic processes of both accounting and auditing are comparative. Both need a thorough knowledge of accounting basics and principles. Both are generally done by the persons with an accounting degree. Both use essential procedures and techniques of book-keeping, computation and analysis. Both accounting and auditing strive to ensure that the financial statements and records provide a fair reflection of the actual financial position of an organization.

Differences Between Accounting and Auditing
Purposes
- Auditing and accounting serve two different purposes. The major purposes of accounting are to decide the profitability position, the financial position as well as the cash flow position of a company. It is also used to determine how well a company is performing. The purpose of auditing is to check whether the financial statements give a true and fair view.

Timing
- Accounting is completed on continuous basis with daily recording of financial transactions; while auditing is basically a periodic process and carried out after the preparation of final accounts and financial statements, usually on yearly basis.

Deliverable
- Accountants prepare profit and loss, balance sheet as well as other statements for use by the management, such as cash flow forecast statement, debtors’ ageing statements.An audit is performed, the auditor will express an opinion on whether financial statements give a true and fair view. He or she will then sign an auditor’s report that will reflect the opinion he/she has about the financial statements that have been prepared by accountants. An auditor can also claim that they don’t receive enough information and, as a result, fail to come up with an conclusion.

Level of Detail
- Accounting is extremely point by point and captures all details related to financial transactions, records and statements; while auditing generally uses financial statements and records on sample basis.

Necessity
- Accounting is necessary for all organizations in the everyday or routine operations; while auditing is not necessary in the day-to-day operations.

Professional Misconduct
- An Accountant is not usually prosecuted for professional misconduct; whereas an auditor can be arraigned for professional misconduct as per the applicable legal procedure.

Shareholders’ Meetings
- Accountant does not attend the shareholders’ meeting; while an auditor may attend the shareholders’ meeting.

Conclusion

  Accounting and Auditing both are specific fields, but the scope of auditing is wider than accounting as it needs a thorough understanding of various acts, tax rules, knowledge of accounting standards and standards on auditing as well as communication skills are also required.

  Apart from that, secrecy, integrity, honesty and independence are the basic requirements that is to be maintained while performing the audit procedure. The reports submitted by the auditor are helpful for the users of the financial statement like creditors, shareholders, investors, suppliers, debtors, customers, government, etc. for rational decision making.

  In spite of the fact that Accounting isn't less, it also requires complete knowledge of the accounting standards, principles, conventions and assumptions as well as Companies Act rules and tax laws. The procedure of auditing is conducted only when the accounting is done properly so; it cannot be neglected.

Published by : Ooi Bao Yi

Reference Link : 

"Audit Vs. Accounting", by Angelique de la Morreaux

"7 Key Differences Between Accounting and Auditing", by Corporate Hub