What is Accounting & Auditing- Its Types & Importance

What is Accounting & Auditing- Its Types & Importance

Auditing and Accounting are two main pillars of any organisation which are directly related to company finances and records. These two play a major role in the financial activities and record-keeping processes of the business.

Basically, the roles and the focus of both roles are totally different. Where accounting means a wider field which relates everything that is directly in relation to money flow from the organisation to the company management the other side, auditing is something which is more professional and specialised and needs a lot of industrial experience.

When it comes to Auditing, it is too a part of accounting.  Auditing is about getting the end results of the accounting activities and financial records that are performed independently.

The motive behind the purpose of auditing is to identify that the company is working as per the operational laws and accounting principles. 

Lets know more about Accounting and Auditing: 

What is Auditing?

A verification activity that is performed for a company is known as Auditing. This is also a procedure which includes some verification steps to ensure compliance to company requirements.

There is no hard rule that an audit should be done over the entire organisation, one can have an audit over any particular functional department rather than applying it over the whole organisation. This will save your time as well as help to get more efficient results. 

There are different kinds of audit that are performed for different functional purposes.

Types of Audits in an Organization

There are three major types of audits, that are described as follow: 

Product Audit:

The ultimate reason behind product audit is to observe that the final product is void of any of the defects and also it is fit to meet the customer requirement.

If the product doesn't meet the requirements of the customer then the auditor should file a report regarding updates and changes, also list the facts and suggestions that are required to correct so that the problem can be eliminated. 

Process Audit: 

Process Auditing is about examining the results to identify the activities, sources and essence that is created for being managed more efficiently and effectively. The process auditing is not about just following a track within departments.

Taking the examination for finding results from input and output is the transaction audit. Such type of audit verifies the work process within the limits.

It helps in evaluating the methods that are against the standards which measures the conformance of standards and are effective to the instructions. 

System Audit:

System audit is about examining the main work system within any organisation, process or any practice. This audit includes performance measurement costing, organisational management and reporting.

The main objective for conducting system audits is to identify comparisons between actual and planned performance and also to verify the system that is valid for the current environment. 

What is Accounting?

Accounting is one of the main pillars of a business organisation. This can be handled by an accountant or by a bookkeeper if the organisation is small or if the organisation is big with end numbers of employees then a team of accountants and bookkeepers are responsible for the same work.

Accounting plays a very vital role in a business organisation because it allows the business owner to track the income, expenditure, compliances, investors, financial information and solution for the welfare of the organisation. 

An accountant helps the business owner in making the best decision for the business. The process of accounting basically includes a few steps like analysing, summarising and reporting the transactions within the organisation, agencies, regulators and tax collecting entity.

The financial statements provided by the accountants is a direct summary of financial transactions in a period of time that summarises the company operations, financial status and cash flow. 

Types of Accounting

Financial Accounting 

Financial accounting is related to the segmentation of any financial information into external reports. Financial accounting is required for detailed knowledge of the accounting structure.

Financial accounting is a process which includes recording, summarising and reporting of financial transactions and generation of revenue expenses in a fixed time period. 

Managerial Accounting 

The process of identifying, measuring, analysing and interpreting accounting information into something that helps business owners to make a final decision for business welfare in terms of finance and manage daily tasks in a very efficient manner which includes daily operational tasks as per the finance institute.

In comparison with other types of accounting managerial accounting is focused on the internal data gathering and data reporting. Managerial accounting basically targets company cash flow, financial transactions, operational costs and rate of return.

Once the accounting information is collected and analysed is translated into presentations and reports that lead to future investments and budgeting decisions. 

Cost Accounting: 

Cost accounting is a type of accounting where the ultimate aim is to capture the organisational total cost of production after assessing the cost of variables in each step of production.

Cost accounting does not come under GAAP compliance and is used for internal purposes. The purpose of cost accounting is controlling and making the strategic plans for the improvement of  efficient cost.

All the financial statements and ledger provides visibility to the management information. This accounting provides an idea of controlling the cost that helps in creating a vision and plan. 

Importance of auditing

Auditing is a process of examining the finance statements and records of any organisation to know inconsistency during the process of recording and verifying the authenticity of transactional records.

Auditing is also performed for the verification of statements that are provided by the company accountant. It also helps to determine the authenticity and accuracy of all recorded transactions.

Auditing is important because it provides a very unbiased report for the organisation. Auditing helps in identifying the points of correction which are required to update by which a business owner can go through many changes and allow them to correct. Basically in simple words auditing is done to bring transparency within any organisation. 

Importance of Accounting

Accounting helps in keeping things on track when it comes to the financial activities of an organisation. It is also a better option for recording each and every aspect which is related to business financial activities and also responsible for providing financial information of the organisation.

When an accountant updates the statements and books, they are updated in accordance with basically knowing the major accounting principles and it makes sure for the business to improve business performance and work efficiency.

Accounting is important for creating and maintaining the originality of a company's vendors and competitors. 

FAQs 

1. Is there any difference between accounting and auditing? 

Ans. There is a very basic difference between both the terms, that is, accountants are responsible;e for the finance-related documents, day-to-day monitoring of books, and filing of taxes. Whereas the auditors are responsible for verifying the accuracy of the statements, products and services that are given by the company for maintaining transparency. 

2. Can an accountant also do auditing with other tasks? 

Ans. Yes, an accountant can do auditing because responsibilities do include financial reporting, accounts managements as well as company auditing. 

3. Among the terms accounting and auditing, which is better? 

Ans. When it comes to accounting it is performed for the purpose of reflecting the actual status, performance and profit ratio of the organisation. Whereas auditing is done to know the corrections and updates that are required for better growth and business transparency.

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