Accountancy vs Auditing: The Basics

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 company’s 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.