Accounting involves tracking, reporting, and analyzing financial transactions. It covers everything from preparing individual tax returns to preparing financial statements for multinational corporations and is considered a fundamental discipline within the field of accounting.
Auditors come in behind accountants and verify the work they do. They examine the financial statements prepared by accountants and ensure they represent the company’s financial position accurately. Auditors verify that these financial statements, particularly the ones of public companies that are required to be released annually, are assembled in accordance with generally accepted accounting principles (GAAP). Like accountants, an auditor can work internally for a specific company or for a third party, such as a public accounting firm, to audit various businesses.
Accounting and auditing are two distinct but interrelated fields within the realm of financial management. Here are the key differences between accounting and auditing:
For the purpose of making decisions, accounting entails the recording, summarising, analysing, and reporting of financial transactions and information. It focuses on keeping thorough financial records that can be relied upon to track an organization’s revenue, outlays, assets, and liabilities. However, auditing is the systematic review and confirmation of these financial records to determine their accuracy, dependability, and compliance with relevant laws and regulations.
Accounting primarily focuses on compiling financial data and creating financial statements like balance sheets, cash flow statements, and profit-and-loss statements. It aims to give stakeholders pertinent information about a company’s performance and financial health. On the other hand, auditing focuses on determining whether those financial statements are transparent and fair through an impartial examination.
Accountants typically perform a variety of tasks for businesses, including maintaining accurate financial records, developing budgets, preparing tax returns, analysing costs, performing financial analysis, and making suggestions for improving internal controls or decision-making procedures. Auditors are typically impartial professionals who are hired by businesses or governmental bodies to conduct a thorough audit of their financial records. Their main responsibility is to express an opinion or guarantee that the company’s financial activities adhere to accounting principles, codes, and regulations.
To record transactions consistently across organisations or nations, accounting adheres to standardised practices like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). This guarantees consistency in financial information reporting across the board. In order to thoroughly review a subset of transactions during review procedures, auditing employs a variety of techniques like sampling methods. To confirm the accuracy of the information that has been recorded, they may also use control tests or substantive procedures like document inspection or physical inspection.
When preparing financial statements, accounting activities frequently take place throughout the accounting period (often monthly or annually). The goal is to make decision-making easier and continuously track financial performance. To ensure compliance with financial reporting standards and regulatory requirements, audits are frequently performed, typically on an annual basis. They may also be carried out at random or when particular conditions call for them, such as during mergers and acquisitions, fraud investigations, or just before making public offerings.
While accountants may work as contractors for businesses seeking their expertise or as employees of organisations, auditors are required to maintain their independence from the company they are auditing. Due to their independence, auditors are able to evaluate the dependability and accuracy of financial records objectively and free from any conflicts of interest.
In conclusion, auditing entails the unbiased examination of those financial records to determine their accuracy, compliance, and fairness as opposed to accounting, which deals with the preparation and presentation of financial data for decision-making within an organisation.