This article sets out to discover where auditing belongs between accounting and financing and thus, it is going to define all the key terms, that is, auditing, accounting and financing and briefly discuss them before revealing where exactly auditing falls. By the end of this article, you will get an answer to the difference between auditing and accounting and if is auditing accounting or financing?
The Economic Times defines auditing as “the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organization.”
There are different types of audits used depending on the needs of the organization. A financial audit determines whether an organization’s financial statements accurately reflect the results of its financial operations. This ensures that the financial condition of the organization conforms to generally accepted accounting principles. A compliance audit ensures that the company has complied with laws and regulations that could have a material impact on the financial statements.
Invoice reviews and compliance audits are more common. However, they are not connected. The profitability and efficiency audit measures whether the company has used its resources economically and efficiently. These resources may include personnel, property, space, and so on; The audit also identifies the root cause of the problem and confirms that the company has complied with the laws and regulations in this regard. One conducts an audit according to the standards set by the Auditing and Assurance Standards Board.
The importance of audits is very clear in the case of errors in accounting. If your account is expired or irregular, the auditor can make a significant contribution to disclosing these details. If the details found indicate fraud or error, it is advisable to use the services of a forensic examiner. There are other subfields, even within auditing, that deal with cases bordering on criminal activity.
What is Accounting?
Accounting is the process of recording financial transactions related to a business. The accounting process includes the aggregation, analysis and reporting of these transactions to supervisors, regulators and tax collectors. The financial statements used for financial reporting are brief summaries of financial transactions during the period, summarizing the company’s operations, financial condition and cash flows (Investopedia).
Accounting is one of the main functions of almost every business. This is done by an accountant or accountant at a small company, or by a significant finance department with dozens of employees in a large company. The statements generated by various accounting processes such as cost accounting and management accounting are invaluable in helping management make informed business decisions.
What is Financing?
Financing is the process of raising funds or capital for any kind of expenditure (Britannica). Consumers, businesses, and governments often lack the funds to make expenses, pay off debt, or complete other transactions. Therefore, they must borrow or sell equity to get the money they need to run their businesses.
Savers and investors, on the other hand, accumulate funds that, if used productively, can earn interest or dividends. These savings are accumulated in the form of savings, savings and loans, or pension and insurance rights; When loaned at interest or invested in stocks, they provide a source of investment.
Funding is the process of directing these funds, in the form of credit, loans, or invested capital, to the business entities that need them most or can use them most productively. Financial Intermediaries are Institutions that channel funds from savers to consumers. These include commercial banks, secondhand, savings and credit unions. Also non-bank institutions such as credit unions, insurance companies, pension funds, investment companies, and financial companies.
The three main areas of finance have developed specific institutions, processes, standards and objectives: business finance, personal finance, and public finance. In developed countries, there are complex structures of markets and financial institutions to meet the needs of these areas collectively and separately. Now that all the key terms have been defined and brief explanations of the same given, where then does auditing belong between accounting and financing.
Auditing, according to ClearTax, is part of the world of accounting. This is an independent audit of accounting and financial records. This is done to find out whether the company or business has carried out its operational activities in accordance with generally accepted laws and accounting principles.
ClearTax continues to say that accounting as a field is very broad and includes many specializations within its framework. Auditing is one such specialization. While accounting deals with tracking and recording financial transactions, auditing takes on the task of verifying the accuracy of accounts. An audit determines the overall accounting integrity of a company in many ways. Annual audits are important even if you are a not-for-profit or public company.
In conclusion, this article defined all three keywords and briefly described what they are. But most importantly, it has been noted with backup that auditing is part of accounting and not financing.
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