Bookkeeping means a way of recording business transactions in books with original entries and ledgers whereas auditing means the verification of vouchers to find out their accuracy and gives a true and fair view in respect of final accounts.
What is Auditing?
Auditing, this term means the on-site verification activity including inspection or examination of a process or quality system, to ensure compliance requirements. The audit can follow up on the complete firm or maybe any specific to a particular function, process or production step.
Few audits have special administrative purposes including auditing documents, performance risk, and follow-up and completed corrective actions.
Auditing includes carrying out the inspection and statutory audit of the financial statements and giving a fair and unbiased opinion on whether the financial statements and records provide a true and reasonable reflection of the exact financial position of the firm.
The auditors, generally, carry out the task of auditing under the provisions of the applicable laws on behalf of shareholders or regulators. The scope of auditing work is determined by the applicable laws.
Why is auditing important?
Auditing is important because it delivers a collection of finance reports credibility and gives shareholders assurance that the records that have been provided are correct and transparent.
It also helps in the improvement of an organisation's professional controls and processes. An audit report is a document to a company’s shareholders from an external consultant on whether the financial reports provide an accurate and fair representation.
An audit is a very important term that is used in accounting which stands for the examination and verification of a company’s financial records. It is to make sure that financial information is represented on a fair and accurate basis.
Audits are mostly preferred to ensure that financial statements are prepared in accordance with the relevant standards.
Without proper regulations and standards, preparers can easily misrepresent their financial positioning to make the company appear more profitable or successful than they actually are exactly in actual.
Auditing is difficult to ensure that companies represent their financial positioning fairly and accurately and in accordance with accounting standards.
Types of Auditing
There are three major types of auditing, which are as follows:
Government audits are those which are performed to ensure the financial statements have been prepared up to date and that do not misrepresent the amount of taxable income of the company.
Audit selections are made to ensure that companies are not misrepresenting their taxable incomes. Misstating taxable income no matter if it is international or national, is considered tax fraud.
The IRS and CRA are now used as statistical formulas and machine learning to find taxpayers at high risk of committing tax fraud.
Performing a government audit may result in a conclusion that there are:
- No changes in the tax return
- Changes that are not accepted by taxpayers
- Changes that are accepted by the taxpayers
If the taxpayers end up not accepting a change, this issue will go through a legal process of mediation and request.
External audits are performed by third parties or external organisations or firms. External audits provide an unbiased opinion for the internal auditors who might be able to give.
External financial audits are utilised to determine any material or misstatements of the company and its financial statements.
When an auditor provides an unqualified opinion or an exact opinion, it reflects that the auditor provides confidence that the financial statements are represented with accuracy and completeness.
External audits are more important for allowing multiple stakeholders to confidently make decisions surrounding the company being audited.
Internal audits are performed by the company employees for their own company and organisation. Such audits are not distributed externally or outside the company.
Instead, they are prepped for the use of management and other internal stakeholders.
Internal audits are executed to improve decision-making within a brand by giving managers accountable items that improve the internal control of the organisation.
These also came to ensure the compliance rules and regulations and also initiate to maintain fair and accurate time.
Management teams can also utilise internal audits to identify flaws or inefficiencies within the company before allowing external auditors to review the financial statements.
What is Bookkeeping?
Bookkeeping includes the recording on regular basis of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on their books to make key operating, investing and financial decisions.
Bookkeepers are the particulars who manage all the necessary financial data for companies and without bookkeepers, companies would not be aware of the exact current financial position, as well as the transactions that occur within the company.
Accurate Bookkeeping is also crucial to external users, which includes investors, financial institutions, or the government - people or organisations that need access to reliable information to make better investments or lending decisions.
Simply put, business entities rely on accurate and reliable bookkeeping for both internal and external users.
Importance of Bookkeeping
Proper bookkeeping gives companies a relaxed measure of performance belonging to them. It also provides information to make general strategic decisions and a benchmark for its revenue and income goals.
In brief, once a business is on set to run, spending extra time and money on maintaining proper records is critical.
Many small businesses don’t actually hire a full-time accountant, who will work for them because of the high cost. Instead, these small companies generally hire a bookkeeper or an outsource company professional firm.
One effective point to note is that many people here, who pretend to start a new business sometimes overlook the importance of decisions such as keeping records of every penny spent.
Types of Bookkeeping
The single entry and double-entry bookkeeping systems are the two methods commonly used. While each has its own advantages and disadvantages, the business has to choose the one which is most suitable for their business.
Single Entry Bookkeeping system
- A single-entry system of bookkeeping requires the recording of one entry for each financial activity and transaction.
- This bookkeeping system is a basic system that a company might use to record daily receipts and generate daily or weekly reports of cash flow.
Double Entry Bookkeeping system
- The double-entry system of bookkeeping requires a double entry for each financial transaction.
- The double-entry system provides checks and balances by recording a corresponding credit entry for each debit entry.
- The double-entry system of bookkeeping is not cash-based. Transactions are entered when a best is incurred or revenue is earned.
Frequently Asked Questions:
1. Is a bookkeeper becoming an accountant?
Ans Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business. An accountant can be considered a bookkeeper, but a bookkeeper can not be an accountant without proper certification.
2. Can an auditor be a bookkeeper?
Ans. Every financial Auditor can be a bookkeeper but not every bookkeeper or accountant can be a financial auditor.
3. Which comes first over accounting and auditing?
Ans. accounting comes where bookkeeping ends. Auditing starts where accounting ends. Accounting is a continuous process, i.e. day to day recording of transactions is done.
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