Table of Contents
What is Accounting?
Accounting is a process that involves measuring, processing, and keeping a record of the company or corporation’s financial data. It can also be used to save non-financial data. The data relating to the company’s financial dealings are essential to keep track of; therefore, companies use this procedure. In this way, the companies can understand their monetary dealings and growth (or decline).
Back in the old times, people also used accounting to record their financial dealings. But the history of modern accounting can be traced back to Italy in 1949 when Luca Pacioli explained the double-entry bookkeeping system. Although he was not an inventor, his explanation of debits and credits in ledgers is still the root of the modern accounting system. The person who carries out the accounting process is known as an accountant.
Accounting is carried out by writing financial statements and keeping those records up-to-date. It also includes recording the calculation of taxes paid, confirmation of clients, and ensuring the amount and payments made to them. Accounting is sometimes called ‘financial reporting,’ as it involves reporting the company’s business financial data.
What is Auditing?
Auditing is a process that involves the verification of financial or non-financial data to check and analyze whether it is according to the required working system or not. The company’s monetary dealings are made on a large scale. This is the reason why it is not only essential to account for them but also to check whether the records are valid or not. Auditing helps to avoid any misuse or unfair dealings made in the business.
The process of auditing primarily began in the 18th century. This century marked the beginning of large-scale production companies and factories, known as the ‘Industrial Revolution.’ The need to record and counter-check the recorded data became highly important. Although the 18th century is considered the beginning of ‘auditing,’ the system of evaluating accounts was carried out in the days of ancient Egypt, Greece, and Rome as well.
The person responsible for carrying out the auditing process is known as the auditor. He works by checking and analyzing the financial statements made by the accountant and matching them with the company’s accounting standards. He evaluates the accuracy and correctness of the records made. The auditing process involves four significant steps planning, fieldwork, audit report, and follow-up review. Every step is carried out in coordination with the client.
Difference Between Accounting and Auditing
- Accounting refers to recording financial dealings, whereas auditing is concerned with verifying those records.
- Luca Pacioli is considered the father of modern accounting, whereas Lawrence Sawyer is the father of contemporary auditing.
- Accounting became a significant field in 1949, whereas auditing became a vital field of work during Industrial Revolution in the 18th century.
- Accounting is done by a person called an accountant, whereas a professional auditor performs auditing.
- Accounting comprises eight essential steps in a sequence, whereas auditing is based on four major steps.
Comparison Between Accounting and Auditing
|Parameters of Comparison||Accounting||Auditing|
|Introduced In||To Record the Financial Data||To Verify Financial Data|
|Proponents||Luca Pacioli||Lawrence Sawyer|
|Involved Steps||Analyzing and Recording, Posting Transactions, Adjusting Entries, Financial Statement||Planning, Fieldwork, Audit Report, and Follow-up|