Accounting Vs. Auditing: Which Is Which?

Accounting and auditing are two processes important in businesses. While many individuals confuse accounting and auditing’s purposes, people who have or are planning to build business ventures should be aware of its functions.The process of auditing begins when accounting ends. Accounting is when companies keep track of monetary transactions. It also involves reporting financial statements of the business. There are three branches in accounting: financial accounting (maintaining, grouping, processing, and analyzing financial reports), cost accounting (identifying key costs), and managerial accounting (planning and support).

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Auditing, on the other hand, is the process of determining the accurate picture of accounting books. It happens after accounting in a certain timeframe (usually a year) is completed. While accounting and auditing are related fields, auditing is a much wider one. It involves an understanding of tax rules, accounting standards, and even the knowledge of various financial activities and transactions. Excellent communication skills are also required in auditing.

Auditing is divided into two: external and internal auditing. External auditing is performed by agencies outside the company. Many countries require companies to have their financial statements audited by external agencies. External auditing is sometimes required by court order, especially if a company declares bankruptcy, or if they have been called out for fraudulent activity. Internal auditing is done to understand various accounting processes and risks. It can be done by employees of the company or by an outsourced agency.

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Eddie O’Brien is the CEO of the Americas at Arvato Bertelsmann. He has worked as an executive for various companies including Microsoft and is also a certified public accountant. Visit this blog for related reads.

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Accounting Vs. Auditing: Which Is Which?

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