Accounting vs Auditing
Auditing and accounting are two closely related concepts which stem from the same subject background of financial reporting, where one function cannot perform effectively without the other in place. The difference between the two is necessary to understand because the combination of these functions is essential, not just for the preparation of financial statements, but also, for ensuring the accuracy of the information in such statements. The following article will distinguish the two in terms of what they mean to an organisation, helping the reader clearly understand the difference between the two concepts.
Accounting is the business function of recording daily business transactions in the books of the firm in order to prepare financial statements at the end of the accounting period. The aim of accounting is to provide extensive and accurate information to the organisation and users of accounting information, which includes information regarding the various economic activities, business transactions and monitory exchanges carried out by the business. The accounting function is performed throughout the year and is performed by full time employees of the organisation in accordance to the specified accounting standards.
Auditing is the process of evaluating the accounting information presented in the financial statements of the organisation. Auditing includes making sure that the financial reports are accurate, fairly presented, ethically prepared and whether the reports are in compliance with the accepted accounting principles and standards. The auditing function is outsourced by the organisations to individual entity specialised in this evaluation, so that the firm may obtain an unbiased view of its financial statements. The auditing firm usually undertakes the audit before the financial statements are presented to the general public, and ensure that the data provides a true and fair representation of the firm’s financial status.
What is the difference between Accounting and Auditing?
Accounting and auditing both require financial information and business transactions of the firm. Principles of both accounting and auditing must be performed in accordance to the accounting standards to ensure compliance with regulatory and statutory requirements. Accounting is the process of recording financial information, whereas auditing is the process of evaluating, and ensuring the validity and accuracy of the financial statements prepared by accountants. The accountants are employees within the firm and are under obligation to prepare the financial reports in accordance to company policies and management requirements. Auditors are personnel outside the firm who are under obligation to ensure that the information recorded represent the true picture of the firm. Accounting takes into consideration the current data and transactions that are happening at this point of time, whereas auditing takes a backward-looking approach with a focus on past data and transactions already recorded in accounting books of the firm.
In a Nutshell, Accounting vs Auditing
• The accounting process performs the role of recording financial data, while the process of auditing takes a more evaluative and analytic view.
• Auditing is a part of preparing financial statements, and therefore, accounting is incomplete unless the financial reports are audited and improved by a third party before they are released for public use.
• The processes of accounting are just as important as auditing as this ensures that the financial data provided are unbiased, accurate and extensive of the firm’s financial status.