Accounting Vs Auditing: Key Differences And Similarities

Updated 21 September 2022

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Accounting and auditing are two common financial processes in the banking, financial services and insurance (BFSI) industry. Accountants and auditors play a crucial role in maintaining a company's financial health and usually work together with distinct goals and duties. If you want to start a career in this industry, knowing how these roles and processes differ can be helpful. In this article, we define accounting vs auditing, explain their differences and discuss some of their similarities.

Definition Of Accounting Vs Auditing

Knowing about the differences between accounting vs auditing processes can be important for all finance professionals. Reviewing the definitions of these processes can help in understanding these differences effectively:

What is accounting?

Accounting is the tracking of a business's monetary transactions to create financial statements that provide an accurate and fair representation of the company's financial health. The process entails keeping a record of a business's cash, assets and liabilities. Nearly all organisations have a team of accountants that help with this process and prepare financial reports regularly. Accountants are usually in charge of tracking transactions, analysing financial data, advising on financial issues and ensuring compliance.

Accountants also generally compile summaries of business dealings for a fixed accounting period using financial statements. The data prepared by accountants and presented in the financial statements helps the company's leadership make informed business decisions.

What is auditing?

Auditing is the process of reviewing financial statements and records made through the accounting function. The goal of this process is to make sure that the financial statements are accurate and that the accounting process is compliant with the law. An audit is a review of a company's books that are carried out at regular intervals to identify potential financial irregularities.

Audits are primarily of two types, internal and external. An internal audit is when existing employees or contractors of the company conduct the audit, whereas third-party professionals, usually selected by the company's shareholders, perform an external audit. The work of an auditor generally begins once the accountant completes their job as auditors evaluate the financial records to find errors and inconsistencies.

Differences Between Accounting And Auditing

Here are some prominent differences between these two financial processes:

Purpose

The purpose of accounting is to provide information on the financial health, profitability and performance of an organisation or corporate entity. Conversely, auditing aims to determine whether or not the financial data provided by accounting is correct. The purpose of auditing is to examine the extent to which the transactions maintain an accurate record.

Types

Financial accounting, management accounting, cost accounting, social benefits accounting, government accounting and human resources accounting are some types of accounting processes. These processes usually focus on one business vertical or function within the company. The auditing process is typically internal or external in nature. While internal audits can help the company improve compliance and fiscal health, external audits serve the role of performing regulatory checks by relevant authorities.

Key deliverables

Those who work in accounting usually maintain financial accounts that show all transactions and records of corporate activities involving an exchange of money. The accountant may also help create the company's financial report. Auditors provide audit reports, which they can mark as 'unqualified' or 'qualified'. External auditors can notify companies when adequate data is unavailable to conduct the audit and what measures or documents are necessary to complete the process.

Scope

The main focus of accounting is maintaining an accurate book of accounts. The scope of the accounting function usually does not go beyond the books of accounts and primarily includes making entries in primary books, posting them to ledgers, passing adjustment entries, maintaining invoices and correcting mistakes. In contrast, the scope of the audit is pre-determined, usually in the term of the contract or the law. The scope of auditing is to give an opinion on the reliability and accuracy of the financial records and statements of companies.

Frequency

Accounting is a process that takes place regularly to record transactions and is an ongoing process. Accountants maintain records of transactions every day and may update the book of accounts fortnightly, monthly or as per company policy. Auditing often takes place at fixed intervals that are well-known in advance. Audits usually happen on a quarterly or annual basis, depending on the industry regulations and internal company policies.

Hierarchy

In most organisations, accounting leaders are members of the middle management team. Internal auditors also usually work in this position. External auditors who are not employees of the company may command a higher authority during the duration of the audit. Accountants may report to auditors during the auditing process to ensure transparency and support.

Day-to-day activities

Checking and balancing books, verifying the accuracy of recorded transactions and keeping meticulous invoice records are some tasks that an accountant may perform daily. Besides assisting the company's leadership with strategic planning, accountants can also compile the company's financial accounts to create reports. Auditors usually spend their day examining the company's financial statements, transactions and procedures and confirming their authenticity. After the audit exercise is over, they generally write comprehensive audit reports detailing the findings of the process and making suggestions or inferences based on the data.

End results

While the final result of the auditing function is the creation of an audit report, the result of the accounting function is the compilation of financial statements for the firm. Occasionally, accountants may also help create the company's financial performance report. The audit report usually gets submitted to relevant authorities before being made public.

Focus

Accountants usually work with recent information and developments. They deal with day-to-day financial concerns and ensure the orderly completion of monetary responsibilities, such as raising invoices, paying bills, maintaining accounts and keeping records. Once they create and file a record, they generally focus on the new developments and transactions. At most, accountants may refer to documents from the current or previous financial year while fulfilling their daily duties.

In contrast, auditors may refer to old transactions and records to verify their authenticity. Depending on the duration of the audit, they can ask the company to produce old records and documents.

Similarities Between Accounting And Auditing

Here are a few ways in which the process of accounting and auditing are similar:

Educational qualifications

A bachelor's degree in accounting, bookkeeping or finance is usually necessary to become an accountant or auditor. Some companies may also expect a master's degree, like MBA, in more specialised domains, such as taxation, accounts management or business management.

It is important to note that specialised accountants, such as chartered or tax accountants, may need the required certifications from the Institute of Chartered Accountants of India (ICAI) or the American Institute of Certified Public Accountants (AICPA) for a global licence. Similarly, companies may require auditors to complete certifications from the Institute of Cost Accountants of India (ICMAI), the Institute of Company Secretaries of India (ICSI) or globally accepted certifications such as the Institute of Internal Auditors or Information Systems Audit and Control Association.

Skills required

Auditors and accountants typically require similar skills to perform their duties effectively. These include:

Mathematics: knowledge of mathematical equations, operations and formulas to perform complex calculations easily
Communication: to coordinate with other departments in the company and write reports
Attention to detail: to ensure compliance and identify data-entry or calculation errors
Problem-solving: to identify, investigate and solve problems when balancing books and accounts
Digital skills: to work with different accounting and financial software and tools

Work environment

Accountants and auditors usually work in the same department and may share the workspace for easier collaboration. They have time-sensitive tasks and deadlines and, depending on the team size, may work overtime during the end of the month, quarter or financial year. Both these professionals can work at government agencies, private companies, accounting firms and professional service companies or offer their services as independent freelancers. They typically have fixed working hours but require strong organisation and time management skills to achieve a healthy work-life balance.

Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed.