Difference Between Accounting And Auditing

Difference Between Accounting And Auditing

4 mins read21K Views Comment
Rashmi
Rashmi Karan
Manager - Content
Updated on Feb 9, 2024 10:31 IST

The main difference between accounting and auditing is that accounting is the process of recording and summarizing financial transactions, while auditing is about verifying the accuracy and completeness of financial statements. The article discusses what are accounting and auditing and talks about the key difference between accounting and auditing.

2022_12_MicrosoftTeams-image-105.jpg

Content

Accounting refers to keeping up-to-date records of every financial transaction, while auditing is when the financial statements prepared under the accounting process are analyzed and evaluated to verify whether they are correct. In addition, steps are taken in the audit to decide whether these financial statements are prepared per the legal and reporting framework specifically defined for preparing financial statement presentations.

Accounting vs Auditing - Tabular Comparison

The critical differences between accounting and auditing are as follows –

Aspect

Accounting

Auditing

Definition

Accounting involves recording, classifying, and summarising financial transactions to prepare financial statements.

Auditing involves examining and verifying financial statements and transactions to ensure their accuracy and compliance with accounting standards and laws.

Nature

Recording and summarizing

Examination and validation

Purpose

Financial reporting and analysis

Verification and assurance

Responsibility

Maintaining records and compliance

Independent review and verification

Timing

Ongoing and continuous

Periodic and after-accounting

Reporting

Generates financial statements

Issues audit reports

Independence

It may or may not be independent

Must be independent

Legal Regulation

Less regulated

Highly regulated

Scope

Broader financial activities

Focused on financial statements

Objective

Providing financial insights

Ensuring accuracy and compliance

Routine vs. Review

Routine tasks and analysis

In-depth examination and testing

What is Accounting?

Accounting is a specialized business language that helps understand an entity’s economic activities. It captures and categorises a company’s daily monetary transactions into different groups. With that, transactions are summarized to be easily viewed in an emergency and then analyzed and understood. Financial statements and finally communicate the results to the interested parties.

The primary task of accounting is to provide helpful financial information for the organization and management. Cost accounting, management accounting, tax accounting, financial accounting, human resources accounting, and social responsibility accounting are the areas of accounting.

Difference Between Audit And Investigation
Difference Between Audit And Investigation
Learn about the fundamental difference between audit and investigation in detail in our blog. Explore how audits provide assurance on financial information, while investigations aim to gather evidence, establish facts,...read more

What is an Audit?

An audit is a systematic procedure intended to independently examine an entity’s financial information to express an opinion on its accuracy. The organization refers to all entities regardless of size, structure, nature, and form. It is a material and objective investigation of all aspects of a transaction. That is, financial statements, vouchers, receipts, accounting records, and related documents are examined to discover the validity and reliability of the financial statements. In addition, errors, fraud, intentional manipulation, usurpation of accounts, etc. They can also be detected by close inspection.

Discover the top job-centric courses after 12th. Also, explore pathways to a fulfilling career with specialised online degree programs.
Drawings in Accounting- Characteristics and its Concepts
Drawings in Accounting- Characteristics and its Concepts
Drawings in accounting refer to the withdrawals made by business owners from their own companies’ funds for personal use. These transactions are not considered business expenses and are recorded separately...read more
Difference Between Manual Accounting And Computerized Accounting
Difference Between Manual Accounting And Computerized Accounting
Manual accounting records and processes financial transactions by hand, while computerized accounting uses software to automate these tasks. Manual accounting is paper-based. The article talks about manual and computerized accounting...read more

Main Differences Between Accounting And Auditing

Let us understand the differences between accounting and auditing in detail –

  • Accounting is keeping records of financial transactions and preparing financial statements, whereas auditing is a critical examination of financial statements to give an opinion on their fairness.
  • Accounting is a day-to-day task of a business, including the daily recording of financial transactions. At the same time, auditing is a systematic process after preparing final accounts and financial statements, usually annually.
  • Accounting primarily focuses on current financial transactions and activities, while auditing focuses on past financial statements.
  • Accounting covers all transactions, records, and statements that have financial implications, whereas auditing mainly covers final financial statements and records.
  • Accounting is very detailed and captures all the details related to financial transactions, records, and account statements, whereas auditing generally uses financial statements and records on a sample basis.
 
  • Accounting focuses on recording and presenting all financial statements and transactions. In contrast, auditing focuses on verifying the accuracy of the financial statements and judging if the financial statements genuinely represent the financial position of a business.
  • Accounting determines a company’s financial position, profitability, and performance, while auditing aims to add credibility to the company’s financial statements and reports.
  • Accountants do accounting, and qualified auditors usually do auditing.
  • A company employee usually performs accounting tasks, while an external person or agency audits.
  • The company’s management appoints the accountant, whereas the auditor is appointed by the company’s shareholders or a regulator.
  • The accountant’s salary is set by management, while the shareholders set the auditor’s fee.
Difference Between Cost Accounting and Management Accounting
Difference Between Cost Accounting and Management Accounting
Cost accounting is a type of accounting associated with the cost structure of a company. It is the process of assigning costs to various business operations and activities of the...read more
Difference Between Cost Accounting and Financial Accounting
Difference Between Cost Accounting and Financial Accounting
Cost accounting and financial accounting are two of the main accounting methods that are widely used by accountants the world. While cost accounting calculates the total cost, financial accounting involves...read more

Check out accounting interview questions

Conclusion

Both accounting and auditing are essential and fundamental for every organization and play a decisive role. However, the scope of auditing is broader than accounting. It requires in-depth knowledge of tax laws and regulations, accounting and auditing standards, and good communication skills.

In addition, confidentiality, integrity, honesty, and independence must be observed in audit procedures. The reports presented by the auditors benefit the users of the financial statements, such as creditors, shareholders, investors, suppliers, debtors, clients, governments, etc., to make reasonable decisions.

Recommended Reads


 

Top Trending Finance Articles:

Financial Analyst Interview Questions | Accounting Interview Questions | IFRS Certification | CPA Exams | What is Inflation | What is NFT | Common Finance Terms | 50-30-20 Budget Rule | Concept of Compounding | Credit Cards Rewards System | Smart Budgeting Approaches

About the Author
author-image
Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio