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Accounting and auditing are both finance oriented job profiles. But they are not the same. The processes and jobs are different in their responsibilities and objectives. To the layman, an accountant and an auditor are easily confused. However, there is a difference between the accountant who records the company’s financial information and the auditor who verifies it. The accountant is a part of the daily operations of a company and may sometimes perform internal audits in the company. An auditor is an external person to a company and is called in to investigate and verify the books of accounts and processes in the company.
Accounting and auditing are both functions that deal with the financial accounting processes. However, they are different in their objectives and functions. To fully comprehend the difference between the two, read on.
Every business must record the transactions that have a financial impact on it. This is essential to keep records and is also necessary to comply with government norms. A business that maintains its accounts properly will be able to handle its financial operations better. Good accounting management also enables the business to be more competitive and better use its resources.
An accountant is a person who performs the function of recording the transactions, cash flow, assets and liabilities of a company. The accountant maintains records and helps the business analyze and interpret its financial data. An accountant can serve as an advisor to the company and help strategize based on changing financial rules and regulations. A good accountant can also help the company assess changes in the market and create different financial models to perform better in changing business environments.
A qualified accountant ensures that the company maintains its records in compliance with the generally accepted accounting standards. The accountant should also be aware of the taxes, laws and rules and implement them correctly in the business. The overall structure of the accounting system has to be made as efficient and accurate as possible.
Some of the functions of an accountant are:
An accountant also generates reports used by the business internally and externally. The internal reports are part of the company’s financial records. They are also used to monitor the company’s internal processes. Internal reports are generated on a daily, weekly, and monthly basis and addresses individual aspects of the operations and helps manage the individual business operations. The more general business reports are used by higher levels of management and may also be submitted to the board of directors periodically. Some of these reports include:
Accountants maintain a company’s financial records and generate the required financial reports. However, auditors examine and verify these generated reports and the financial accounting system. Auditing ensures that the financial information is maintained according to generally accepted practices. They also check if the financial information in the reports is a fair and accurate representation of the company’s finances.
Auditing can also be performed internally by one of the firm's employees. Sometimes, in larger companies, internal auditing may also be outsourced. Internal audits are performed to check the individual department records and processes and how they all integrate. Internal audits also help ascertain if the company operates in the most efficient and streamlined manner possible. The reports generated by internal auditing are used only by the company’s management.
External auditing is performed by an auditor who is not connected to the company’s accounting process. Auditors are generally appointed by the company's board of directors or owners. They are selected for their reputation, qualification and objectivity. The purpose of external auditing is to verify the reports objectively. An external audit aims to verify if the company is following best accounting practices and ensure that there is no financial malpractice or mismanagement.
Some of the key goals of external auditing are checking for:
Both auditors and accountants adhere to Generally Accepted Accounting Principles (GAAP) and The International Financial Reporting Standards (IFRS). While GAAP is US-based, the IFRS is a uniform standard that helps align the practices and principles of accounting and auditing worldwide. Modern scales of economy mean that companies either grow to be multinational or have a multinational client base. So, being in line with generally accepted accounting practices makes it easier for companies to do business with each other regardless of geography. In addition to the accounting standards, accountants and auditors must also know the laws, taxes and regulations that apply to accounting in their geography. Expertise in industry standards, norms and practices is also essential.
Though the goals and functions of accounting and auditing are different, they also have a lot in common. Both accountants and auditors have to be experts in financial accounting. Some of the similarities between auditing and accounting are:
Qualifications: The industry standard varies across countries, but generally, both accountants and auditors must have a bachelor's degree. They may also choose to become Certified Public Accountants (CPA). This requires additional training, and they need to pass a qualifying exam. Different countries also have qualifying criteria for auditors who can perform an external audit of a company’s accounts.
Skills: Many of the skill sets that are required for accountants and auditors are the same.
Written communication: The reports generated by accountants and auditors are the basis of major financial decisions. So, they should be able to communicate financial information in a clear and easy-to-understand manner in reports.
Logic and math: Accountants and auditors need very clear and logical thinking. This enables them to find ways to continually improve a company’s processes. Mathematical skills are essential to work with and comprehend finances. Logic and math together help decipher patterns and organizational structures.
Focus: Accountants need complete forums to manage the details of a company’s financial accounts and see the bigger picture. Auditors need to focus on smaller details to detect any intentional or accidental discrepancies.
Math: Accountants and auditors need excellent math skills, ranging from basic to complex mathematical operations.
Organization skills: It is important to be a good organizer to sort and create an orderly understanding of a company's large volumes of financial information.
Computer skills: Accounting software helps accountants and auditors easily analyze and interpret financial information. An accountant or auditor must be familiar with different accounting software types to easily examine digitized accounts.
Problem-solving: Despite great care, a company's books may not always balance. An accountant should have a proactive mindset to detect the issue and balance the books. Auditors use these skills to identify and investigate discrepancies in accounts.
The difference between accounting and auditing is:
Function: An accountant maintains the record of a company's financial information. An auditor examines and evaluates the maintained accounts.
Goal: An accountant maintains a fair and accurate record of transactions while an auditor verifies the fairness and accuracy of the records.
Deliverables: An accountant is responsible for generating financial statements based on maintained financial records. An auditor releases an auditing report that states the opinion on the financial records.
Daily activities: There is a big difference between accounting and auditing activities. Accountants perform the daily tasks of maintaining records, analyzing data, creating projections, budgeting and monitoring the finances. Auditors spend their day studying financial data, verifying records, identifying problem areas and creating audit reports. Accountants are responsible for the company’s accounts daily, while auditors periodically work on each company’s accounts. Accountants are more involved in the operational aspects of accounting, while auditors are more analytical.
Level: Designation level is an area of difference between accounting and auditing. Accountants and internal auditors are usually on the same level. External auditors are at a higher level of rank than accountants.
So, as we have described above, there are similarities and a difference between accounting and auditing. One of the tools they find useful is full-featured accounting software. TallyPrime is an integrated business management software that makes the work of both accountants and auditors easier and quicker.
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