ACCOUNTS AND AUDITING

INTRODUCTION OF ACCOUNTING
Book keeping will just provide the information. It will not present a clear financial
picture of the state of affairs of a business.

Accounting is considered as a system which collect and processes financial information

of a business.

These information’s are reported to the users to enable them to make appropriate
decisions.

DEFINITION OF ACCOUNTING
“Accounting maybe define as “A systematic recording of information which involves
analyzing, classifying, summarizing and interpreting business transaction.”

INTRODUCTION OF AUDITING
Auditing is a systematic process of objectively gathering and evaluating evidence
relating to assertions about economic action and events in which the individual or
organisation making the assertion has been engaged, to ascertain the degree of
correspondences between those assertion and established criteria, and communicating
the results to users of the reports in which the assertions are made.

DEFINITION OF AUDITING
“An auditing is independent examination of financial information of any entity, whether
profit oriented or not, and irrespective of its size or legal form, when such an
examination is conducted with a view to expressing an opinion thereon.”

TYPES OF ACCOUNTING
Accountants can specialize in different types of accounting depending on their career
interests and goals. Here are the nine most common types of accounting:

1. Financial accounting
2. Managerial accounting
 3. Cost accounting
4. Auditing
5. Tax accounting
6. Accounting information systems
7. Forensic accounting
8. Public accounting
9. Governmental accounting

TYPES OF AUDITING
Among the various types of audits, financial audits are the most popular followed by
operational and strategic audits and in addition to the emerging practice of IT
(Information Technology) audits. Moreover, auditing as a process has now become so
routine and compulsory worldwide that organizations spend quite some time getting
their books of accounts and processes audited by both internal and external auditors.

1. Internal Audits

2. External Audits

3. Financial Audits

4. Strategic, Operational, and IT Audits

DIFFERENCE BETWEEN ACCOUNTING AND
AUDITING

BASIS FOR ACCOUNTING AUDITING

COMPARISON

Meaning Accounting means Auditing means inspection of

systematically keeping the the books of account and
records of the accounts of an financial statements of an
organization and preparation of organization.
financial statements at the end
of the financial year.

Governed By Accounting Standards Standards on Auditing

Work performed Accountant Auditor

by

Purpose To show the performance, To reveal the fact, that to

profitability and financial which extent financial
position of an organization. statement of an organization
gives true and fair view.

Start Accounting starts where Auditing starts where

bookkeeping ends. accounting ends.

Period Accounting is a continuous Auditing is a periodic process.

process, i.e. day to day
recording of transactions are
done.
OBJECTIVES OF ACCOUNTING:

The following are the main objectives of accounting:

1. To maintain full and systematic records of business transactions:

Accounting is the language of business transactions. Given the limitations of

human memory, the main objective of accounting is to maintain ‘a full and
systematic record of all business transactions.

2. To ascertain profit or loss of the business:

Business is run to earn profits. Whether the business earned profit or incurred
loss is ascertained by accounting by preparing Profit & Loss Account or Income
Statement. A comparison of income and expenditure gives either profit or loss.

3. To depict financial position of the business:

A businessman is also interested in ascertaining his financial position at the end

of a given period. For this purpose, a position statement called Balance Sheet is
prepared in which assets and liabilities are shown.

4. To provide accounting information to the interested parties:

Apart from owner of the business enterprise, there are various parties who are
interested in accounting information. These are bankers, creditors, tax
authorities, prospective investors, researchers, etc. Hence, one of the objectives
of accounting is to make the accounting information available to these interested
parties to enable them to take sound and realistic decisions. The accounting
information is made available to them in the form of annual report.
OBJECTIVES OF AUDITING

The objectives of auditing are changing with the advancement of business techniques.
Earlier it was only to check the correctness of receipts and payments. The objectives of
the auditing have been classified under two heads:

1) MAIN OBJECTIVE

2) SUBSIDIARY OBJECTIVES

Main Objective: The main objective of the auditing is to find reliability of financial
position and profit and loss statements. The objective is to ensure that the accounts
reveal a true and fair view of the business and its transactions. The objective is to verify
and establish that at a given date balance sheet presents true and fair view of financial
position of the business and the profit and loss account gives the true and fair view of
profit or loss for the accounting period. It is to be established that accounting
statements satisfy certain degree of reliability. Thus the main objective of auditing is to
form an independent judgement and opinion about the reliability of accounts and truth
and fairness of financial state of affairs and working results.

Subsidiary objectives: The subsidiary objectives of the auditing are:

1. Detection and prevention of fraud: the one of the important subsidiary objective of
auditing is the detection and prevention of fraud. Fraud refers to intentional
misrepresentation of financial information. Fraud may involve:

a. Manipulation, falsification or alteration of records or documents

b. Misappropriation of assets.

c. Suppression of effect of transactions from records or documents.

d. Recording of transactions without substance.

e. Misapplication of accounting policies

2. Detection and prevention of errors: is another important objective of auditing.

Auditing ensures that there is no mis-statement in the financial statements. Errors can
be detected through checking and vouching thoroughly books of accounts, ledger
accounts, vouchers and other relevant information.

CONCLUSION

Accounting and Auditing go hand-in-hand and inter-related to each other. The job which
is done or completed by the accountant is verified and certified by the auditing agency
or independent auditor.

To start auditing, the basic framework of accounting needs to be established by the

organization. The reliability of the financial statements is assessed by auditors and they
add more value to it.

They also work together when an organization wants to set stringent and effective
accounting processes. An auditor can test the accounting controls & measures designed
and implemented by an accountant. Auditors can help to identify the control gaps and
high-risk areas and suggest process improvement for better risk management.

To put in simple terms accounting is the process of keeping track of financial data or
information while auditing is the process of making sure that these financial records are
authentic and are free from material misstatements.

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