Accounting V/S Auditing

Difference between Accounting and Auditing: 

What is accounting?

Accounting is the process of recording all financial transaction which is related to business.

Accounting is a systematic process of identifying, measuring, recording, classifying, summarizing, interpreting, and communicating financial information of a business.

 

 

What is Auditing?

Auditing is the process of evaluating, Checking, verifying all the statement which are generated during the accounting reports. Accounting reports consist of the day-to-day financial transaction that took place in the business.

Auditing is a systematic examination of the book and record of a business in order to ascertain or verify and to report upon the facts regarding financial reports.

 

Need for differentiation between Accounting and Auditing: -

With the rising number of complexities in performing business in the modern era, there was a need to understand basic operations for conducting business/vocation/profession which involves accounting as one of the base pillars in the foundation of the business.

Whereas, for determining true and fair views of the performance of the business auditing is required.

 

 

Difference between Accounting and Auditing on the basis of different criterion: -

 

Criterion	Accounting	Auditing
Definition	Accounting is a process of keeping records of financial transactions and preparing financial statements.	Auditing is examining the finical statements to give the opinion on their fairness.
Objective	To determine the financial position, and find out profit earned or loss suffered by a company for a particular period.	To examine the correctness of account and financial statements and clarify whether the company exhibits a true and fair view of the state of affairs of concern.
Legal Status	Governed by accounting standards.	Governed by standards on auditing.
Qualification	An accountant does not require any formal or specific qualifications.	An auditor should have qualified chartered accountant certified by the Institution of chartered accountants of India.
Beginning	Its start where book-keeping end.	It starts where accounting end.
Timing	Continuous with a daily recording of the financial transactions.	Periodic process and carried out after preparing of final account.
Period	Concrete on the current year's financial transactions and activities.	Concrete on previous or past year financial statements.
Performed By	Accountants	Auditors
Status	Carried out by internal employees.	Carried out by an external person or independent agency.
Appointment	By the management.	By the shareholder.
Remuneration	Salary.	Auditing fees.
Remuneration Fixation	By the management.	By the shareholder.
Necessity	Necessary for all organizations in day-to-day routine operation.	Not necessary in day-to-day operations.
Report submission	To the management.	To the shareholder.
Guidance	Accountants may make the suggestion for the improvement of accounts and related activity.	Auditors usually do not make a suggestion.
Liability	Generally, end with the preparations of the accounts.	Liability after the preparation and submission of an audit report.
Deliverable	Financial statements (e.g. Income statements, Profit and loss, Balance sheet, Cash flow statements, etc.)	Audit Report.
Shareholder Meeting	An accountant does not attend	Auditor may attend
Scope Determination	By the management.	By the relevant law.
Removal	By the management	By the shareholder
Professional misconduct	An accountant is not usually prosecuted for professional misconduct.	Auditors can be prosecuted for professional misconduct.

 

 

Terminology used: -

 

Accounting Standards: - They act as Authoritative Standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP). Accounting stands to specify how transactions and other events are to be recognized, measured, presented and disclosed in financial statements.

 

Standards on Auditing: - Acts as a guide to an auditor to add value to the assignment hence, building confidence for the investors.

The standards cover various areas of auditing, including respective responsibilities such as audit planning, internal control, audit evidence, and using audit conclusions and reports.

 

Bookkeeping: - it is a record of financial transactions and is considered a part of the process of accounting. Transactions include purchase, sales, receipt, payments by an individual person, or an organization/corporation.

 

Conclusion: -

 

Accounting and Auditing both are essential for the organization. Accounting and auditing are carried separately by internal employees of the organization and external person and independent agency respectively.

 

There are many differences between both. Accounting is continuous and focuses on the recording of financial transactions on a daily basis. Auditing independent and focus on evaluating financial statements and providing an unbiased opinion.

 

Their usage is also what differentiates them according to there applicability to different types of end-users, such as accounting is beneficial to the management to determine their Financial position, whereas auditing adds authenticity to accounting reports and builds trust for investors and government departments upon there performance.

 

Both the ends have their own undue importance on the business, and a slight change in accounting or auditing can have a great impact on the final outlook of the business is manifolds more than just operation of the business.