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What is the difference between accounting and auditing?

Carine Thompson • 8 June 2023

Time to read: 3 minutes


What is accounting?


Accounting can be defined as the process of capturing, classifying, summarising, analysing, and presenting financial information of an entity.

 

Accountants are tasked with the preparation of the financial statements of an entity and their responsibility generally ends when this is completed and presented to the management of the entity. The accountants can suggest areas of improvement relating to the accounting process and related activities.


What is auditing?


Auditing is defined as the critical examination of the financial records or statements of an entity.

 

Auditors use the prepared financial statements to complete the auditors’ report that is presented to the shareholders. Unlike accountants, auditors do not make suggestions for improvements except for specific requirements such as internal control. Auditors are usually external and independent of the company to provide credibility of the financial statements.


What are the similarities between accounting and auditing?


Accounting and auditing have basic processes that are very similar. ACCA requires both accountants and auditors to have a thorough knowledge of accounting basics, standards and principles. Both accounting and auditing use vital procedures and techniques of book-keeping, computation, and analysis. The main purpose of both is to ensure that the financial statements show a true and fair reflection of the actual financial position of an entity to its stakeholders. 


What are the differences between accounting and auditing?


The focus of accounting is to accurately record and present the financial information of an entity in the form of financial statements. However, the focus of auditing is to substantiate the accuracy and reliability of the information provided in the financial statements. This is to form an opinion of whether financial statements show a true and fair view of the financial position of the entity to the shareholders.


The accounting process of an entity is always ongoing with the daily recording of financial transactions. It is very detailed as it captures the current financial transactions and activities of an entity. During the accounting process, the financial records are checked and verified for accuracy and completeness. This is different from the audit process, which is annually and at the end of the financial year end when the financial statements are completed. This is because auditing concentrates more on past events rather than current events. The auditing of the financial statements is carried out through the process of test or sample checking which determines if the financial statements reflect a true and fair view of the entity.


To conclude


The objective of accounting is to determine the financial position, profitability, and performance of an entity. However, the objective of auditing is to add credibility to the financial statements and reports of the entity. However, both the accounting and audit processes are required by stakeholders to make informed decisions based on the financial statements.


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At 1st Class Accounts, we are a fully experienced team of accountants providing a full range of services for businesses of all sizes. We serve contractors, sole traders and limited companies nationwide. No matter what your accounting needs may be, we are ready to help. We strongly believe that our success is based on your success and we can genuinely say that we are committed to your financial well-being.

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