Draw A Distinction between the Auditor and the Accountant;

Articulating the meeting point in their roles

Assignment on Audit
Acc 8

Submitted by

Adagbonyin Ezemwenghian
PAC230124

Department of Accounting
Faculty of Management Science

November, 2024
1.0 INTRODUCTION/BACKGROUND
Businesses often hire skilled finance experts to help prepare financial reports either for
statutory or regulatory purposes such as calculating and preparing tax returns to tax
authorities or Preparing Annual Reports for shareholders and other users of financial
information or to management for decision functions such as planning, budgeting,
forecast for costing technique and other analysis. Whether a company requires
assistance ensuring regulatory compliance or identifying discrepancies in a company
expense report, accountants and auditors can help by collecting, analyzing and verifying
financial records. Although accountants and auditors share some job functions, their
roles are distinct.

1.1 What are Accounting and Auditing?

Accounting:

Accounting is one of the key functions of a business. Accounting refers to the process
of capturing, classifying, summarising, analysing and presenting the financial records,
transactions, profitability, statements and financial position of an organisation. It is the
process of recording financial transactions of a business.

Accounting of an organisation is usually done by its own employees. The financial

statements used in accounting are a brief summary of financial transactions over an
accounting period. Accounting is categorised into various branches, such as, cost
accounting, financial accounting, management accounting, etc. The accounting reports
help the management to make informed business decisions.

Auditing:

Auditing refers to the examination of the financial statements or records of an

organisation. Auditing is carried out after the final preparation of the financial accounts
and statements. It involves carrying out the inspection and statutory audit of the
financial statements.

Auditing gives an unbiased and fair opinion on whether the financial records and
statements provide a fair and true reflection of the actual financial position of the
organisation. The auditors, usually external persons or entities, carry out the process of
auditing under the provisions of the applicable laws on behalf of regulators or
shareholders.

Auditing has two main categories, i.e., internal and external audit. Internal audit is an
audit conducted by an internal auditor, generally an employee of the organisation.
External audit is conducted by an external auditor who is appointed by the
shareholders.
1.2 Similarities between Accounting and Auditing

Most of the basic processes of accounting and auditing are similar. Accounting and
auditing need a thorough knowledge of accounting principles and basics. They are
generally done by persons with an accounting degree. They use essential techniques and
procedures of computation, book-keeping and analysis to compile financial reports and
statements.

Usually, the procedures for activities in accounting and auditing such as tax compliance are similar.
They can also have the same bookkeeping methods, such as cash or accrual basis. They strive to
ensure that the financial records and statements are prepared with accuracy and provide a fair
reflection of the financial position of an organisation.

1.3 Key Differences Between Accounting and Auditing

Particulars Accounting Auditing

Accounting is the process of classifying, Auditing is the process of examining the

recording, interpreting and summarising the financial statements and records of an
Definition financial statements and transactions to organisation to find discrepancies during the
determine the actual financial position of an process of recording of transactions and to
organisation. verify the accuracy of the records.

Accounting is done with the purpose of

Auditing is done to verify the accuracy of
reflecting the actual position, performance
Purpose records and statements presented by
and profitability of the business or
accounting.
organisation.

To determine the profit and loss or the

To determine the correctness and accuracy of
Objective financial position of an organisation for a
all the recorded transactions.
period.

Accounting is done daily, as transactions Auditing is a periodical assessment and is done

Period
happen on a daily basis. on a monthly, quarterly or yearly basis.

Responsible
Accounting is done by accountants. Auditing is done by auditors.
person

Accounting starts at the end of

Initiation Auditing starts at the end of accounting.
bookkeeping.

Concentrates on the current financial

Concentration Concentrates on the past financial statements.
activities and transactions.

All records, transactions and statements

Scope Final financial records and statements.
having financial implications.

Captures all details related to financial Uses financial records and statements on a
Details used
records and transactions. sample basis.

Governing
Governed by Accounting Standards. Governed by Standards on Auditing.
standards

Carried out by Carried out by an internal employee. Carried out by an external person or
 independent agency.

Appointment and Accountants are appointed and removed by Auditors are appointed and removed by the
removal the management. shareholders.

Remuneration Accountants receive a salary. Auditors receive auditing fees.

Financial statements, i.e., income statement

Deliverables or profit and loss account, balance sheet, Audit report
cash flow statement, etc.

Report submitted
Management Shareholders
to

Accountants can make suggestions for

Suggestions improving the accounting and related Auditors usually do not make suggestions.
activities.

Liability ends with the preparation of the Liability ends after preparation and submission
Liability
accounts. of the audit report.

Accountants do not attend shareholder’s

Attend meetings Auditors can attend shareholder’s meetings.
meetings.

Prosecution for Accountants are not usually prosecuted for Auditors can be prosecuted for professional
misconduct professional misconduct. misconduct.

1.4 Why do we Need Accounting and Auditing?

Accounting helps to keep track of all the financial activities of a business, irrespective
of the organisation size. It reliably records every aspect of financial activities taking
place, which is a crucial piece of information for the management of your company.

When the books of a business or organisation are kept up-to-date in accordance with the
generally accepted accounting principles, it makes it possible for the business owners to
gauge the business performance and also make peer to peer comparisons. This is an
important aspect of creating and maintaining credibility with the competitors and
vendors.

Accounting helps in identifying the areas of underperformance and those that require
corrective measures. The information derived from accounting assists in the long term
project planning of the business as well. The financial position of the business helps to
determine how much credit can be allowed and at what rates, etc. Investors will get a
clear picture of the risk and opportunity that the company could offer them. Keeping the
accounts in place will serve you well when it is time to pay your taxes, file your returns
and claim deductions.

Auditing is essential as it gives an unbiased overview of the business. Auditing often

identifies errors that may exist in the business processes through which the business
owners can make changes to rectify them. It ensures transparency as well.
External auditing helps to build credibility of the business, improve relationships with
the suppliers/clients and ensures a positive public image. It becomes easy to sell the
business in future because the auditing process has already been done. It can also
improve the credit rating of the business. Thus, attracting the investors and bank’s
attention.

1.5 What is the Importance of Auditing in Accounting?

Accounting as a field is vast and comprises many areas of specialisation within its
framework. Auditing is one of such specialisations. While accounting deals with the
tracking and recording of financial transactions, auditing fulfils the role of verifying the
accuracy of the accounts. Auditing in many ways determines the integrity of the whole
accounting system of a company. Auditing of financial statements on an annual basis is
important even if you are a non profit or a public company. This will add credibility for
your accuracy. Even when auditing is not mandatory it is a good practise to have it in
place.

The importance of auditing is particularly seen in case of errors in your accounts. If

your bookkeeping has not been up to date or in order, an auditor can make significant
contributions in uncovering those details. If the details uncovered denote any presence
of fraud or wrongdoings, a forensic auditors service is advisable. There is a further sub
field even in the realm of audits that deals with cases verging on the lines of criminal
activities.

There are different types of audits that can be availed depending on the need of the
organisation. Financial audits determine whether an organisation’s financial statements
accurately represent the results of the business’s financial operations. It makes sure that
the organisation’s financial position is in accordance with the generally accepted
accounting principles. Compliance audits check if the company has functioned in
accordance with the laws and regulations that may materially impact the financial
statements.

Financial and compliance audits are more often. However, they are not combined.
Economy and efficiency audits measure whether a business has been economically and
efficiently managing its resources. These resources could include personnel
(employees), property, space, etc. The audit also determines the causes of any problems
and checks if the company has followed the laws and regulations in this regard. Audits
have to be conducted based on the Standards set by the Auditing and Assurance
Standards board.

1.6 Meeting point

Both occupations have financial professionals who work with clients to review
monetary transactions, investments, and tax liabilities. Here are some notable
similarities between an accountant vs. auditor:

Job functions
Accountants and auditors share similar job responsibilities, such as:

 preparing and reviewing tax documents

 advising about financial processes and reporting methods
 analyzing expenses for a company or individual
 analyzing the details of a company's finances
 working with a company's chief financial officer (CFO) to discuss financial
decisions
 acting as consultants regarding financial decisions and processes
 verifying the accuracy of financial reports
 reviewing financial documents for signs of fraudulent activity or mistakes

Conclusion

Accounting and Auditing both are specialised fields, but the scope of auditing is wider
than accounting as it needs a thorough understanding of various acts, tax rules,
knowledge of accounting standards and standards on auditing as well as communication
skills are also required.

Apart from that, confidentiality, integrity, honesty and independence are the basic
requirements that is to be maintained while performing the audit procedure. The reports
submitted by the auditor are helpful for the users of the financial statement like
creditors, shareholders, investors, suppliers, debtors, customers, government, etc. for
rational decision making.

Although Accounting is not less, it also requires complete knowledge of the accounting
standards, principles, conventions and assumptions as well as Companies Act rules and
tax laws. The procedure of auditing is conducted only when the accounting is done
properly so; it cannot be neglected.

REFERENCES:
When accounting process ends, auditing begins, for the purpose of determining the true and fair
picture of books of accounts. It is an activity of record keeping and preparation & presentation of the
financial statement. Accounting is used by the firms for keeping a track of their monetary transactions.
It is the language the business understands, as it is the tool for reporting financial statement of the
business entity.

Conversely, Auditing is an activity of verification and evaluation of financial statement. It aims at

checking and comfirming the authenticity of financial books prepared by the accounting staff of the
enterprise. Thus, it determines the validity and reliability of accounting information.

Go through with the article presented to you, to understand the difference between accounting and
auditing.

Comparison Chart

Basis for
Accounting Auditing
Comparison

Accounting means systematically keeping the records Auditing means inspection of the
Meaning of the accounts of an organization and preparation of books of account and financial
financial statements at the end of the financial year. statements of an organization.

Governed By Accounting Standards Standards on Auditing

Work
Accountant Auditor
performed by

To reveal the fact, that to which

To show the performance, profitability and financial
Purpose extent financial statement of an
position of an organization.
organization gives true and fair view.

Auditing starts where accounting

Start Accounting starts where bookkeeping ends.
ends.

Accounting is a continuous process, i.e. day to day

Period Auditing is a periodic process.
recording of transactions are done.

Definition of Accounting

Accounting is a specialised language of business, which helps to understand the economic activities of
the entity. It is an act of orderly capturing the day to day monetary transactions of the business and
classifying them into various groups along with that, the transactions are summarized in a way that
they can be easily referred at the time of urgency, thereafter analyzing and understanding the results of
the financial statement and finally communicating the results to the interested parties.

The main function of accounting is to provide material information, especially of a financial nature for
decision making. Cost Accounting, Management Accounting, Tax Accounting, Financial Accounting,
Human Resource Accounting, Social Responsibility Accounting are the fields of Accounting. The
primary objectives of Accounting are as under:

 Proper record keeping through Journal, Subsidiary Books, Ledger and Trial Balance
 Determination of the results (profitability position) from the records maintained through Trading and
Profit & Loss Account
 Showing the financial position of the entity through Balance Sheet
 Providing necessary information about solvency and liquidity position to the interested parties.

Definition of Auditing

The audit is a methodical procedure of independently examining the financial information of an entity
with the aim of giving an opinion on true and fair view. Here organisation refers to all the entities,
regardless of their size, structure, nature and form.

Auditing is a critical, unbiased investigation of each and every aspect of the transaction, i.e. vouchers,
receipts, account books and related documents are verified, in order to spot the validity and reliability
of the financial statement. Moreover, errors and frauds or deliberate manipulation in accounts or
misappropriation etc. can also be detected through detailed scrutiny.

The auditor will inspect the accuracy and transparency of the financial information, compliance with
the accounting standards and taxes are properly paid or not. After the complete inspection of
accounting books and financial records, he will give an opinion in the form of a report. The reporting
on the true and fair view shall be made to the person who appoints the auditor. There are two types of
Audit Report, they are:

1. Unmodified
2. Modified
o Qualified
o Adverse
o Disclaimer

The audit can be conducted internally and externally. The task of internal audit is conducted by an
internal auditor who is appointed by the management of the organisation for improving its internal
control systems and accounting system. External Auditor is appointed by the shareholders of the
company.

Key Differences between Accounting and Auditing

The points provided below explain the difference between accounting and auditing, in detail:

1. Accounting is an art of orderly, keeping the records of the monetary transactions and preparation of
the financial statements of the company. Auditing is an analytical task which involves the independent
evaluation of the financial information to express an opinion on true and fair view.
2. Accounting is governed by Accounting Standards, whereas Standards on Auditing governs Auditing.
3. Accounting is a simplified task, which is performed by the Accountants but Auditing is a complex task,
so Auditors are required for performing it.
4. The main purpose of accounting is to reveal the profitability position, financial position and
performance of the organization. Conversely, auditing is to check the correctness of the financial
statement.
5. Accounting is a continuous activity. Unlike Auditing, which is a periodic activity.
6. End of Accounting is the start of Auditing.

Conclusion
Accounting and Auditing both are specialised fields, but the scope of auditing is wider than
accounting as it needs a thorough understanding of various acts, tax rules, knowledge of accounting
standards and standards on auditing as well as communication skills are also required.

Apart from that, confidentiality, integrity, honesty and independence are the basic requirements that is
to be maintained while performing the audit procedure. The reports submitted by the auditor are
helpful for the users of the financial statement like creditors, shareholders, investors, suppliers,
debtors, customers, government, etc. for rational decision making.

Although Accounting is not less, it also requires complete knowledge of the accounting standards,
principles, conventions and assumptions as well as Companies Act rules and tax laws. The procedure
of auditing is conducted only when the accounting is done properly so; it cannot be neglected.