When it comes to any organization, the finance function and department are the most important, and they serve as a firm basis for the organization’s success. Any financial mismanagement leads to devastating effects, and in some instances, the failure of a company. However, many people become confused and approach them as if they were the same activities or procedures. However, their labour’s breadth and operability are vastly different between them.
Accounting vs Auditing
The main difference between accounting and auditing is that when the accounting procedure concludes, on the other hand, auditing commences to determine the accurate and fair image of account books. It’s a process that involves keeping track of finances and preparing and presenting a financial statement. Businesses use accounting software to keep track of their financial transactions. Because it is used to report financial messages for a company, it is a language that the business can comprehend.
In accounting, you keep track of every payment information, like buying or selling something. You also make financial statements that show how much money you made or lost. There are times when it is called “bookkeeping.” On the other hand, auditing is how financial statements made during the accounting process are checked and rechecked to see if they are true.
It’s part of the auditing process to figure out whether or not a company’s financial statements have been prepared in a way that meets the rules and regulations for how they should be prepared and presented.
Comparison Table Between Accounting and Auditing
|Parameters of Comparison||Accounting||Auditing|
|Definition||Accounting is the process by which businesses’ day-to-day monetary records are maintained, and these records are then used to compile their financial statements. These financial documents provide an accurate picture of the health of the company.||The accounting process involves an in-depth evaluation of financial statements and records, known as auditing. Finances are an essential part of a company’s overall performance.|
|Initiation||Accounting creates financial statements using data from a company’s books of account, i.e. daily transactions involving the sale or purchase of anything.||When the accounting job is completed, the auditing process begins. Before being made public, the accounting function’s financial statements are reviewed for correctness, completeness, and reliability.|
|Mode of Operation||Every day that is, continually running.||Periodic (quarterly or annually)|
|Scope||Current: The scope of work includes preparing financial statements for the current fiscal year.||Past: The scope of the task includes the validation of financial statements from the past.|
|Objective||Accounting’s main purpose is to establish if a company has produced profits or losses, and hence its current financial state.||The primary goal of auditing is to ensure that an organization’s accounts and financial statements are accurate and complete and confirm that they represent its actual financial position.|
What is Accounting?
An accounting phrase is “business language” since it describes how a company is measured using precise numerical figures, and these figures or numbers are created using accounting.
In plain English, the following questions, which include particular numbers, can assist you in better understanding accounting.
- How many units of items have been sold in the current month, quarter, and year?
- What is the total amount of money spent in this month, quarter, or year so far?
- What stage of the business cycle is the company in? Is it losing money or making money?
- How much of a profit or loss did the total cost of the sale or purchase generate?
- In terms of revenue, what is the company’s current market share?
- What are the company’s overall profit margin and the profit margin for each outlet?
Accounting, then, is how financial facts and information are recorded and maintained. On the other hand, auditing is the act of ensuring that these financial records are correct and free of substantial errors.
What is Auditing?
An auditor examines and verifies a company or other organization’s financial accounts. Because accounting records are used to create financial statements, auditing also involves a thorough examination of those records on an as-needed basis.
As shown in its financial statements, a company’s accounting records are used to assess the accuracy and reliability of the company’s financial information. A year’s worth of financial records must first be completed and financial statements compiled before an audit can begin. Auditing is a kind of post-mortem action that may be described as the following:
In-house employees undertake internal audits, whereas professional external auditing organizations or independent auditors conduct external audits. An auditor may test accountants’ accounting controls and measures to verify that they are correctly created and implemented. Identifying control gaps and high-risk areas, as well as giving suggestions for process improvement, may be done by auditors, who can help enhance risk management.
Main Differences Between Accounting and Auditing
- Accurate financial transactions are recorded every day, and the financial statements are prepared at the end of the year. On the other hand, auditing is a particular activity performed quarterly or annually.
- A bookkeeper or accountant is responsible for accounting, whereas an independent auditor is responsible for auditing.
- Accounting is the art of recording, preparing, and keeping a company’s daily economic transactions, whereas auditing is the practice of examining and analyzing the transactions.
- An auditor ensures that an accountant’s work is error-free by auditing.
- Auditors examine the papers of accountants to determine if they have done their jobs honestly and accurately. In contrast, accountants are concerned with keeping track of costs and ensuring that businesses and individuals maintain a steady flow of revenue.
Generally speaking, accounting and auditing are intertwined and interdependent on one another. For example, the job that the accountant performs or completes is verified and validated by an auditing agency or an independent auditor before it is released to the public.
Before a business can begin auditing, it must first create the fundamental framework of accounting that will be used. Auditors are responsible for determining the trustworthiness of financial statements and adding value to those financial accounts. They also collaborate when a firm wishes to implement accounting systems that are both severe and effective.