Accounting and Auditing are very important processes in the financial affairs of any company. The difference between accounting and auditing ranges from purpose to the process involved in both terms.
A generally acknowledged universal truth is: neither accounting nor auditing can exist alone especially for public listed companies .i.e companies whose shares are traded on the Nigeria Stock Exchange. Accounting cannot be considered as accurate if auditing doesn’t take place neither can Auditing begin if the accounting had not ended.
Accounting relates to the activities of record-keeping, forecasting, preparation, and presentation of financial statements. Accounting is fondly regarded as the language of business.
The major determinant of whether a business would continue as a going concern or would fold up in the foreseeable future is the accounting department.
On the flip side, auditing is an evaluation and verification tool. It aims to confirm that the financial statement prepared and presented from the accounting process gives a true and fair view of the financial affairs of the concerned company.
The difference between accounting and auditing would be further unraveled in the ensuing paragraphs.
But first, let’s delve into the meaning of accounting and auditing respectively. This is the basis to understand the difference existing between the two similar but entirely different concepts
What is Accounting?
Accounting is the art of recording, classifying, summarizing, and analyzing financial transactions of a business. The product of the accounting process results in the provision of financial information that is useful to stakeholders of an entity.
The process of accounting involves the bookkeeping, design of efficient accounting systems, preparation and presentation of financial statements, analysis and, interpretation of the financial statements as well as the development of forecasts necessary for decision making,
The financial information presented by the management is what would in turn be audited by the auditors appointed by shareholders of any entity at the end of each accounting year.
Importance of Accounting
The importance of accounting includes but is not limited to the following:
- Accounting Profits determine the basis of computing tax.
- Accounting information is used to ascertain the efficiency of the policy formulated by management and to efficiently plan and control the resources of the business.
- Accounting information enables shareholders to assess how efficiently their resources are being managed by the management. This would better equip them to make decisions like buying and selling shares amongst other things.
- Financial statements enable lenders to decide whether more credit facilities can be granted and whether the company will be able to pay interest and principal when they fall due.
Accounting holds importance that is peculiar to each of their stakeholders, and the aforementioned is part but not all of the importance.
What is Auditing?
Auditing dates back to the medieval ages. Records have it that people were employed to review the works of estate managers and tax collectors in ancient Egypt and Rome.
In today’s time, auditing is a process carried out by an independent qualified person whereby the records and financial statements of an entity are subjected to examination in such detail as we enable the auditor to form an opinion as to the truth and fairness of the financial statements.
There are two types of audits: internal and external audits. The external audit is the one carried on in compliance with the Companies and Allied Matters Act (CAMA) while the internal audit is carried out on the instance of the management of the entity.
Importance of Auditing.
Auditing is important to various stakeholders of a business, from the shareholders to the Government agencies and authorities.
- Auditing gives a complete and detailed overview of your company. It shows areas where your company needs to improve.
- Auditing helps companies improve their internal controls. During the auditing process, it is highly probable that weaknesses would be discovered in the internal control systems of companies. The auditor would advise the management on how to improve such.
- If the financial statements of an entity are true and fair according to the auditors. The credit rating and reliability of such companies increase. This avails them access to better credit facilities.
- Regular audit exercise encourages management and employees to remain credible. They will focus more on making their work error-free since they know the company’s auditor would find out any flaws in their work.
Difference between Accounting and Auditing
Like I earlier stated, accounting and auditing are continuous in nature. Auditing begins immediately accounting ends.
Asides this glaring detail, there are other differences between accounting and auditing which you will find out in this section.
Accounting is concerned with the recording, summarizing, preparation, and presentation of financial statements for users to make informed decisions while Auditing is the critical examination of financial statements to determine whether it gives a true and fair view of the financial affairs of the company.
Accounting aims to show the financial performance and position of an entity while auditing aims to reveal the extent to which the financial statements give a true and fair view of the entity’s financial affairs.
- Regulating Standard:
Accounting is regulated by the International Financial Reporting Standards (IFRS)/ International Accounting Standards (IAS). Auditing, on the other hand, is regulated by International Standards on Auditing (ISA)
Accounting commences immediately after bookkeeping ends. The process of Auditing begins as soon as Accounting ends.
Accounting is continuous in nature, it involves the recording of daily transactions. Auditing is usually at the end of each company’s accounting year.
- Performed by:
Accounting is performed by accountants while auditors are responsible for auditing.
- Reported to:
Management receives the accounting report while shareholders receive the audit reports.
The remuneration of accountants is based on salary since they are usually a staff of the entity. The remuneration of auditors is usually fixed before the audit assignment.
- Remuneration fixed by:
Accountants salary is determined by management while Shareholders are responsible for determining the remuneration of auditors
- Shareholders’ meeting:
An accountant cannot attend shareholder’s meeting while auditors have the liberty to attend such gathering.
Accountants are appointed by the management of the company. The shareholders are responsible for appointing auditors of the company.
An accountant requires no specific qualification while it is desirable for auditors to be ICAN certified. To read more on what ICAN entails, click here.
Accounting exercise is carried on by a staff of the company while auditing is carried on by an external independent person or body.
The scope of work for accounting is determined by Management while the scope of auditing is set by the relevant laws.
Accountants can be removed by Management while Auditors can be removed by Shareholders.
- Professional misconduct:
Accountants are usually not prosecuted for professional misdemeanors while auditors may be prosecuted for professional misconduct.
Accounting and auditing go hand-in-hand. The job done by an accountant must be certified as true and fair by the auditor for it to be credible.
Either can not exist alone. The auditor cannot perform his duties if there is no financial statement prepared by accountants while the accountant’s job would lack credibility if it’s not certified by the auditor.
Although both are specialized fields, auditing is wider and more complex than accounting, but regardless neither is more important than the other, as they both play a huge role in determining whether a company would continue as a going concern or not.