20+ Difference Between Accounting And Auditing (Explained)

People often misunderstand the terms accounting and auditing. Yet, these are two incredibly critical processes when it comes to the finances of any organization or firm.

Having a brief but crisp and clear understanding of these financial terms is significant for anyone, especially if you are planning to build your career in finances.

It is necessary to remember that a lack of accurate knowledge about these procedures can prove detrimental to any organization.

So, gear up and make yourself well acquainted with the differences between accounting and auditing.

In This Article

Comparison Between Accounting And Auditing

Parameters	Accounting	Auditing
Procedure	It involves maintaining records of a firm’s financial transactions, assessing them, and preparing financial statements.	It involves scrutinizing the accounts of a firm for correctness and authenticity.
Types	Accounting is mainly of four types; tax accounting, financial accounting, managerial accounting, and cost accounting.	Auditing is majorly of two types; internal and external auditing.
Professionals Involved	Accounting is the job of accountants.	Auditing is the job of auditors.
Order	Accounting comes before auditing.	Auditing starts after accounting has been done.
Time	Accounting is a perpetual process.	Auditing takes place after a certain period of time.

Explanations Of Accounting and Auditing

What Is Meant by Accounting?

Accounting is an exercise of utmost importance for businesses. Accounting gives an outline of a firm’s operations, cash flows, and financial condition during a definite period by taking into account the information regarding a firm’s financial transactions.

It does not only focus on keeping a record of the financial data but also on analyzing and reporting them to the concerned entities. The primary purpose of accounting is to evaluate the financial activity of a firm.

What Is Meant by Auditing?

An audit is a requisite for any firm. It is the exercise of probing into the financial statements of a firm or organization. Studying and evaluating them aims to guarantee that a firm’s financial data is not only precise and correct but also authentic.

Auditing also intends to check whether the financial statements are recorded by keeping a close eye on the rules and regulations.

Differences Between Accounting And Auditing

Procedures

Accounting- Accounting involves the procedure of maintaining the data of a firm’s finances in order to convert them into financial statements. The financial information is not recorded but also analyzed, and reports are prepared.

Auditing- It is known as auditing when the books of financial accounts are inspected closely for any inaccuracies and to confirm that everything has been prepared justly.

Types

Accounting- Broadly, accounting can be classified into four types; managerial accounting, financial accounting, tax accounting, and cost accounting.

When the financial data is identified, assessed, interpreted, and disseminated to the managers of a firm, then the exercise of accounting is referred to as managerial accounting. The primary objective f this type of accounting is to help in the managerial functions, which basically include decision-making.

Financial accounting is the area of accounting that focuses on summarizing the financial information of a firm and preparing financial statements. These are reported to external entities.

The accounting exercise that deals with an organization’s taxes are called tax accounting. It is done by complying with a different set of rules and regulations determined by the Internal Revenue Code.

A set of accounting methods used to recognize, keep records and report an organization’s total cost of production is known as cost accounting.

Audit- Audits are mainly grouped into two categories; external audits and internal audits.

It is an external audit when the organization hires outsiders to perform the auditing exercise. An external audit aims at providing a transparent and unbiased picture of an organization’s financials. In addition, it assesses the correctness and fairness of the prepared financial accounts.

On the other hand, internal audits are performed by either the employees of the organization or those employed by it. Therefore, their opinions are primarily concerned with enhancing the managerial aspects of the organization.

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Key Differences between Accounting and Auditing

Accounting

It is the process of recording and analyzing financial transactions.
It involves developing financial statements.
Specific accounting standards must be followed.
Accountants perform the job of accounting.
It gives the financial standing of a firm.
It is a constant process.

Auditing

It is the process of closely inspecting and examining the prepared financial accounts.
It involves preparing audit reports.
Whether the accounts have been prepared following the accounting standards

must be affirmed.

Auditors perform the job.
It gives affirmation about the genuineness and accuracy of accounts.
It is a systematic process that takes place after a definite period.

Exercise Done By

Accounting- Some basic levels of accounting can be performed by bookkeepers. However, to dive deeper and perform advanced accounting, accountants are needed.

Auditing- Auditors are responsible for carrying out the task of auditing. Auditors are classified into four types; internal auditors, external auditors, forensic auditors, and government auditors.

Internal auditors are employees of a firm who have the job of examining the operations of the firm justly without any partiality. The evaluation and advice of an internal auditor are crucial for the firm’s management.

However, as the word suggests, external auditors are not the employees of a firm. It means that they are entirely independent of the firm that they audit.

Nevertheless, they are responsible for ensuring that the firm’s financial accounts are fair and in line with the accounting standards.

Skills Required

Accounting- To perform accounting, accountants must have expertise in accounting practices and be competent in preparing financial statements. Apart from these skills, the other required hard skills include analytical skills and the ability to use accounting software.

Auditing- An auditor must be well-versed in not only auditing standards but also accounting standards. They must have excellent analytical skills and be proficient in preparing audit reports.

Significant Deliverables

Accounting- The most critical deliverable of an accountant is financial statements that are in compliance with Generally Accepted Accounting Principles (GAAP). They should include the cash flow, balance sheet, and profit or loss statement.

Auditing- Auditors are responsible for providing an audit report. These reports are categorized into two types; unqualified reports and qualified reports.

When the auditor issues a report that a firm’s financial accounts are devoid of flaws, then the report is unqualified.

However, the unqualified report is the one that states the presence of some inaccuracies in the financial statements of a firm.

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Accountants VS Auditors

Accountants

Accountants are responsible for keeping track of the day-to-day finances of a firm.
They prepare financial statements.
The job of an accountant is daily.
They help run a firm by providing a clear view of its finances.

Auditors

Auditors scrutinize the work of accountants.
Their work involves preparing audit reports.
Their job is to perform auditing once in a while (annually or quarterly).
They ensure that the accounts are free of any mistakes or biases.

Goal

Accounting- No firm or organization can run without performing the accounting exercise. Its primary objective is to maintain error-free records of a firm’s financial data in order to locate a firm accurately in terms of its finances.

Auditing- Auditing that is, confirming that the financial accounts of a firm are error-free and reliable helps to establish the firm’s trustworthiness in the eyes of its shareholders.

Time

Accounting- Accounting is a continuous process that is carried out on a day-to-day basis.

Auditing- The process of auditing is generally carried out once a year. Sometimes, it is also done quarterly.

FAQs (Frequently Asked Questions)

1. Who is the first accountant?

Accounting traces its roots to late 15^th century Italy. It is believed that Luca Pacioli was the first person who explained the double-entry system.

2. Why is accounting important?

Accounting plays a significant role in its overall functioning and management by systematically keeping track of and maintaining an organization’s finances.

3. What is the difference between internal audit and internal control?

While the internal audit is carried out to improve a firm’s decision-making process by checking its financial accounts’ credibility, internal control is performed to detect fraud and assess the firm’s risks.

4. When does auditing begin?

It is not possible to conduct auditing if a firm does not perform accounting. Therefore, auditing initiates after accounting ceases.

What is the difference between an audit certificate and an audit report?

An audit report is a final statement stating that the firm’s financial accounts are honest, correct, and in compliance with the rules and regulations.

It is the dissemination of the auditor’s examination and remarks. However, an audit certificate is just a written confirmation of the fairness and accuracy of the accounts.