written by | May 30, 2022

Accounting vs Auditing: What's the Difference?

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If you're wondering whether you should consider a career in accounting, you've come to the right place. Both accounting and auditing have important roles within organisations. As professionals, these jobs are often carried out by people with a degree in accounting. Most accounting processes employ critical methods of bookkeeping, calculation and examination.

However, there are some differences between accounting and auditing. Read on to learn more. You'll be glad you read this article.

Did You Know?

Accounting dates back to the earliest days of human civilisation and agriculture. Sumerians kept accurate records of agricultural products.

In the Christian Bible, the Parable of the Talents and Book of Matthew describe simple accounting. In the Islamic Quran, the concepts of credit arrangements and trade are also mentioned.

Also Read: What are the Different Types of Audits and Levels of Assurance?

What is Accounting?

Before we move towards the part where we’ve explained the auditing and accounting differences, let’s first understand them one by one. While today, accounting is used for financial reporting and decision-making, it has been around for more than four thousand years. There are several schools of thought on the history of accounting, but the foundational concepts are the same.

In simple terms, accounting is the recording of transactions. Raw data is thrown out when a business closes; however, accountants classify that data into categories. A chart of accounts shows the categories, and these entries become the basis of an individual account or summary record. For example, an account for accounts receivables could be a master account for all receivables.

Accounting provides managers with information about business operations. Some of this information comes from actual recorded transactions, but most accounting reports and analyses contain estimated amounts based on various assumptions.

These estimates are not distributed to external parties and are used to inform decisions made by management. Accounting data is also used to prepare budgets, control operations and estimate selling prices. As a result, business owners must understand what goes into financial reporting. Ever wondered what the responsibilities of an accountant are? Check the following points.

An Accountant Undertakes the Following Tasks

  • Creating financial statements
  • Analyzing expenses
  • Ensuring compliance with tax laws and various regulations
  • Forecasting outcomes of fiscal decisions
  • Filing tax returns
  • Providing advice for management of finances
  • Suggesting ways to save money
  • Staying current with tax law and procedures’ knowledge

What are the reports that accountant provides a business? Check the following points to get the answer.

Reports that Accountants Provide a Business Include

  • Profit and Loss statements
  • Total market share of the company
  • Profit and loss Proportion compared to the organisation’s total sales
  • Current active employee count
  • Profit margins
  • Monthly, quarterly, or annual cost savings comparisons
  • Company growth over time

You have learned reports that accountants provide, next know what auditing and its focus is.

What is Auditing?

The process of auditing involves evaluating the financial records of an organisation. While most audits involve the financial system, there are many types of audits. Some audits involve operations or information technology, as well.

In fact, almost every business conducts an audit of its financial statements annually. Most lenders demand that their clients conduct annual audits to extend them a loan. For certain types of businesses, an auditor is a legal requirement.

Internal audits are done to identify shortcomings and issues before conducting external audits. Internal audits focus on policies and procedures and check whether they comply with statutory and internal standards. These audits are typically used in education, health care and regulated industries.

For these reasons, they are often referred to as "pre-audit" audits. Once an audit has been completed, the company is required to make any necessary adjustments or improvements.

An auditor is a professional who examines a company's accounting records and procedures in order to give an opinion about the financial statements. The auditor then issues a report regarding whether or not these financial statements conform to generally accepted accounting principles.

Usually, the audit is performed by outside professionals who are not employees of the company. However, in some cases, this role is performed in-house by management. The audit process begins before a company's financial statements are created, and it includes a number of key steps.

An Auditor Focuses On-

  • Accounting system efficiency
  • Statutory compliance with industry regulations and requirements
  • Planning and budgeting accuracy
  • Fraud detection and prevention

Standards for Accounting and Auditing

The purpose of accounting standards is to measure management's performance, such as its ability to increase profitability and maintain solvency. Hence, management needs to select accounting policies carefully.

However, constant changes in accounting policies are not only confusing for users of financial statements but also violate the principles of comparability and consistency. Regulatory bodies constantly update and revise accounting standards to prevent these problems.

However, if a company fails to adhere to a particular standard, the financial statements will have to be audited to prove their worth.

If you want to make sure that the information presented in financial statements contains knowledgeable data and is accepted worldwide, the board of Auditing & Assurance Standards under the council of the ICAI has developed a few Standards.

They have International Standards that IAASB issues. The AASB standards include

  • Standards of Quality Control (SQCs)
  • Standards on Auditing (SAs)
  • Standards on Review Engagements (SREs)
  • Standards on Assurance Engagements (SAEs)
  • Standards on Related Services (SRSs)

Accounting Vs Auditing: What Are The Similarities?

Although the terms accounting and auditing are often used interchangeably, the two different professions have some similarities.

  • Both jobs require a thorough understanding of accounting processes and procedures and, in most cases, a degree in accounting.
  • Both processes use the same bookkeeping, computation and analysis procedures to ensure that financial statements are fair and accurate.
  • Both are necessary for businesses and organisations.
  • Auditors and accountants need to issue reports that are accurate, clear and easy to comprehend.
  • Auditors and accountants must keep up-to-date with the tools and applications companies use to analyse and report information.
  • Accounting professionals use their problem-solving abilities when they balance their books. Auditors employ these skills when they look for discrepancies and conduct reviews of accounting records that have been completed.
  • To create and confirm financial statements, both auditors and accountants need to be capable of organising the data they get from other people and the information they share.

Also Read: Accounting vs Bookkeeping

Differences Between Accountancy And Auditing

Comparison Table (Accounting vs Auditing)

Basic Terms

Auditing

Accounting

Meaning

It is a systematic check-up of financial statements to ensure whether they show a fair and a true picture of the organisation.

It is the process of maintaining, recording and reporting financial statements by an organisation.

Hierarchy

The second step after undertaking an accounting function.

The first step before starting the auditing function.

Frequency

Performed quarterly or yearly.

Continuous process.

Personnel In-Charge

Certified external auditors.

Outsourced/In-house accountants.

Compliance Requirements

Auditing standards and rules.

Accounting standards and rules.

Shareholders’ Meeting

Auditors attend the meeting.

Accountants do not attend.

Key Deliverables

Audit report.

Financial statements.

Purpose

To verify the dependence of financial statements.

To report the financial conditions of the company.

Removal

Shareholders remove Auditors.

Management removes accountants.

Remuneration Type

Auditing fee

Salary

As accounting and auditing are largely similar, it is important to note the differences between the two professions.

  • While accounting focuses on recording financial transactions and producing financial statements, auditing focuses on examining those records for accuracy and fraud.
  • Auditing is a review of a company's financial records for accuracy and compliance with the law. While accounting is a day-to-day activity, auditing is a more thorough evaluation that may occur monthly, quarterly or annual.
  • While auditing is not a profession requiring comprehensive mathematics knowledge, accountants need to be trained to add and subtract daily transactional figures.
  • While accountants work internally for a company, auditors work for third parties.
  • While accounting is a continuous process, auditing is a periodic process of inspecting financial statements. 
  • Accounting requires a person with a high level of detail, whereas auditing involves an investigation-oriented professional. 
  • Accountants must adhere to strict guidelines, while auditors may be mobile.

Conclusion

Keep in mind, Auditors and accountants can have similar backgrounds and expertise, but their roles are different. Auditing and Accounting are two vital processes every organisation must consider. We hope you understood the relationship between accounting and auditing through this guide and how they differ.
If you’re going to be an accountant, you’ll already have a lot of calculators, and extra business calculations will annoy you. Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Are Auditing and Accounting Vital for All Companies?

Ans:

Yes, both are vital for all companies.

Q: What Is the Relationship Between Accounting and Auditing?

Ans:

Accounting is very extensive and includes all the details of financial transactions, records and statements. Typically, auditing relies on financial records and financial statements on an example basis.

Q: How to Distinguish Between Auditing and Accounting in Terms of Mode of Operation?

Ans:

Accounting is done regularly, as transactions take place daily for any business. Auditing is a periodical assessment which is carried out monthly, quarterly or yearly.

Q: What Is an Accountant’s Primary Goal?

Ans:

An accountant's primary goal is to provide the public with material information regarding a company's financial position. Accountants work closely with auditors to prepare auditing reports that demonstrate an organisation's financial situation.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.