QS Study

There are significant differences in the methods, objectives, and parties responsible for the accounting process by which the financial statements are prepared and audit of the statements.

Accounting is the process of identifying, measuring, and communicating economic information to various users.

Auditing is a systematic process of objectively obtaining and evaluating evidence assertions about economic actions and events to ascertain of correspondence between those assertions and established criteria and communicating the results to interested users.

A relationship between accounting and auditing –

(a) Methods: Accounting methods involves identifying the events and transactions that affect the entity. Once identified, these items are measured, recorded, classified, and summarized in the accounting records. The result of this process is the preparation and distribution of financial statements that are in conformity with generally accepted accounting principles. The audit of financial statements involves obtaining and evaluating the evidence concerning management’s financial statements to enable the auditor to verify whether the statements do in fact present fairly the entity’s financial position, the result of operations and cash flows in conformity with GAAP.

(b) Objectives: The ultimate objective of accounting is the communication of relevant and reliable financial data that will be useful for decision making. Rather than creating new information, the primary objective of auditing is to add credibility to the financial statements prepared by management.

(c) Responsibility: Accounting is a creative process. An entity’s employees are involved in the accounting process, and ultimate responsibility for financial statement lies with the entity’s management.

The auditor is responsible for adhering to generally accepted auditing standards in gathering and evaluating the evidence and in issuing an audit report that contains the auditors’ conclusion expressed in the form of an opinion on the financial statements.

Those are the main relationship between auditing and accounting.