Differences Between Auditing And Accounting

Accounting is related to the collection, recording, analysis and interpretation of financial transactions but
auditing refers to the examination of books of accounts along with the evidential documents. So, following
differences can be shown between auditing and accounting:

1. Meaning
Accounting is the act of collecting, recording, analyzing and interpretation of financial transactions but
auditing is the act of examination of books of accounts and evidential documents, so as to prove the true
and fair view of profitability and financial position.

2. Beginning Of Work
Work of accounting begins when financial transactions take place but work of auditing begins when work
of accounting ends.

3. Scope
Accounting prepares profit and loss account and balance sheet and other statements as per the
instruction of auditor but auditor checks the books of accounts considering their fairness as well as
complying with the provision of company act or not.

4. Nature Of Work
Accounting keeps the record of financial transactions but auditor checks and verifies the books of
accounts.

5. Staff
An accountant is a staff of an organization and draws the salary from the business but an auditor is an
independent person who is appointed for specific period and gets a sum of remuneration.

6. Preparation Of Report
An accountant does not prepare report after the completion of his task but he has to give information to
the management when needed but auditor needs to prepare and present report after the completion of his
work to the concerned authority.

7. Responsibility
An accountant remains responsible to the management but an auditor is responsible to the owners or
shareholders.

Accountancy vs. Auditing:

The Basics
Posted on April 17, 2012

Ever wondered exactly how the roles of an accountant and an auditor differ? The
following is a rundown of the basics involved with each profession.
At its simplest, an auditor is the guy who asks everyone questions and an accountant is
the guy who gives the auditor elusive answers. While this is a humourous way of
putting it, it depicts quite accurately what happens in most organisations the
accountant produces the accounts and the auditor audits and qualifies them.
Accounting and auditing are related professions, indeed accountants and auditors
usually hold the same qualifications. An accountant is a practitioner of accountancy.
Accounting involves maintaining and recording of the financial transactions of a
company. Accountants ensure that there is proper record keeping within the
organisation. The main goal of accounting is to provide the company with clear,
comprehensive and reliable information on the operations of the company for decision
making. This information in presented in the form of an income statement, balance
sheet, statement of changes in equity and cash flow statement.
Essentially, auditing starts where accounting ends. Auditors use the financial reports in
the evaluation, verification and review of the accounts books of the company. Auditors
do an independent appraisal of the strength of the internal control system and
compliance of the books of accounts to Generally Accepted Accounting Principles and
international accounting standards. They also check on non-financial issues like risk
analysis.
An audit can be internal or external. External audits are done by independent bodies,
like audit firms KPMG and Ernst and Young. Internal audits are carried out by the
companys own internal audit department. Other types of audits are forensic and
security.

Main difference between auditing and accounting:

1)

Accountants are usually employees of the company whereas external auditors are

employees of the audit firm who perform an independent appraisal of the books of
accounts. An internal auditor is an employee of the company but is not part of the
accounts department. They do not report to anyone in the finance department to avoid
a conflict of interest.
2)

Accounting is governed by Generally Accepted Accounting Principles and

international accounting standards. In contrast, an auditors check for material

misstatements and their auditing processes are governed by auditing standards.
3)

Accounting is a day-to-day process, while an audit takes place after a fixed period

of time or after the occurrence of an extraordinary event, like fraud.

4)

Accounting is a must have for all businesses whereas some companies choose to

do without audits.
5)

Accountants provide financial management and other information necessary for

effective decision making in the company. By contrast, auditors are not involved in the
management of the company and clearly state in their report that the financial
statements are the responsibility of the directors of the company.
6)

After the end of the financial year, accountants produce the financial statements.

After the audit, auditors issue an opinion on whether the financial statements present a
true and fair picture of activities of the company. Auditors can also claim to have failed
to reach an opinion on the accounts due to lack of sufficient information.
7)

Accountants work in their given offices whereas auditors move from company to

company doing their work.

8)

Accounting is more detailed financial work whereas auditors sample financial

information to come to a professional opinion.

Accounting and auditing are related and complementary, though the work is done by
different sets of accountants with separate skills within the financial field.

Distinction Between Responsibilities of Auditor and

Management
.02
The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether caused by error or fraud. fn 1 Because of the nature of
audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance
that material misstatements are detected. fn2 The auditor has no responsibility to plan and perform the audit to obtain
reasonable assurance that misstatements, whether caused by errors or fraud, that are not material to the financial
statements are detected. [Paragraph added, effective for audits of financial statements for periods ending on or after
December 15, 1997, by Statement on Auditing Standards No. 82.]

.03
The financial statements are management's responsibility. The auditor's responsibility is to express an opinion on the
financial statements. Management is responsible for adopting sound accounting policies and for establishing and
maintaining internal control that will, among other things, initiate, record, process, and report transactions (as well as
events and conditions) consistent with management's assertions embodied in the financial statements. The entity's
transactions and the related assets, liabilities, and equity are within the direct knowledge and control of management.
The auditor's knowledge of these matters and internal control is limited to that acquired through the audit. Thus, the
fair presentation of financial statements in conformity with generally accepted accounting principles fn3 is an implicit
and integral part of management's responsibility. The independent auditor may make suggestions about the form or
content of the financial statements or draft them, in whole or in part, based on information from management during
the performance of the audit. However, the auditor's responsibility for the financial statements he or she has audited
is confined to the expression of his or her opinion on them. [Revised, April 1989, to reflect conforming changes
necessary due to the issuance of Statement on Auditing Standards Nos. 53 through 62. As amended, effective for
audits of financial statements for periods beginning on or after January 1, 1997, by Statement on Auditing Standards
No. 78. Paragraph renumbered by the issuance of Statement on Auditing Standards No. 82, February 1997. Revised,
April 2002, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 94.]

Internal audit (IA) is distinct and different from external audit. While they are complementary functions within the
assurance framework which may work closely together and need to be coordinated, organisations will not get the
best or most cost effective assurance from IA unless the differences are recognised and IA is treated as a separate
profession with its own value and expertise.
Both forms of audit are essential for the effective governance of an organisation. Both need to be independent,
objective, properly resourced and work according to their respective international standards. But they perform
different functions and need to report separately to the board / audit committee.
Regulators must take these differences into account when creating policy related to governance and internal audit.
Legislative and regulatory references to audit and the auditor should be specific as to whether they are referring to
external audit or internal audit.

Table 1 The distinct roles of internal and external audit

Item

External audit

Internal audit

Recipient of
reports

Shareholders or Members

Board members and senior

managers

Objective(s)

Add credibility and reliability to

reports from the organisation
to its shareholders by giving an
opinion on them

Provide the assurance that

members of the board and senior
management use to fulfil their
duties

Coverage

Financial reports and related

disclosures, financial reporting
risks and their management

All categories of risks, their

management including the flow of
information around the company,
and governance

Timing and
frequency

Project(s) tied into financial

reporting cycle, focused on
objective of audit opinion

Ongoing and pervasive

Focus

Mainly historical

Ideally forward-looking

Responsibility for
improvement

None duty to report control

weaknesses

Fundamental to the purpose of

internal auditing

Status and
authority

Statutory and regulatory

framework

International professional
standards and Code of Corporate
Governance

Independence

Professional ethical standards

overseen by audit committee
and regulatory framework

Professional ethical standards

overseen by audit committee