The process of accounting and auditing are often conflated and used interchangeably. However, there are key distinctions between the two practices, and they serve different functions. Accounting, by definition, is the process of recording, organizing, reporting, and analyzing financial transactions. Thus, the accounting process covers everything from bookkeeping, tax filing preparations, financial statement preparations, and business analyses.
But, what about an audit? Auditing is a process independent of accounting. It is an independent examination of a firm of individuals’ financial records to ensure there are no errors in these financial statements and that the documents and the preparation are done in accordance with Philippine laws and generally accepted accounting principles.
To find out more about these two fundamental processes to any business or organization, read more here:
This is the process of recording, preparing, reporting, and analyzing financial transactions. This accounting cycle begins with journalizing, which is a process by which all financial transactions are listed down on the day they occurred. From there, each transaction gets posted to the appropriate general ledger, which includes asset accounts (cash and equivalents, inventory, prepaid expense, property and equipment), liabilities accounts (debts, long term loans, payables), sales accounts, expenses accounts, and contra-asset or contra-sales accounts.
After posting the general ledger, the final amounts under each account for the accounting period will be used in the preparation of financial documents, including the Statement of Financial Position (SFP), Statement of Comprehensive Income (SCI), also known as Income statement, Statement of Changes in Equity (SoCE), and Statement of Cash Flows (SCF).
These financial statements will then be used to account for and compute the income tax return. Additionally, business managers and operators may use this financial information to gauge the growth of their company and as a guide for making business decisions that will allow their business to meet goals.
As an independent examination of financial records, auditing works essentially like having the health department check food companies to ensure they are up to safety standards. Auditing is a process that dates back all the way to ancient China and was later established as an important and prudent way to track movements of money to maintain quality financial management.
Today, auditors exist and function to ensure that company and individual financial statements and tax returns are properly prepared and filed, to ensure compliance with accounting standards and laws. Noteworthy, there are four types of audits, namely:
- Financial audits, which ascertain if an organization’s financial statements are fairly and properly prepared and truthfully represent the organizations financial operations, financial position, and financial health, while being done in accordance with key accounting principles.
- Economy and efficiency audits, which determine if an organization is efficiently and economically managing its resources, like property, human resources, and space.
- Compliance audits, which determine whether an organization is complying with laws and regulations on the preparation of financial statements and tax returns. Compliance audits are , notably, often done in combination with financial audits.
- Program results audit, which looks at specific programs to identify if the goals, desired results or benefits are being achieved and if they can be achieved for a much lower cost.
If you need accounting and auditing services for your business, we can help you with both. Our team of certified public accountants is ready to provide guidance and assistance to ensure your company’s optimal fiscal health. Don’t hesitate to call us for questions and clarifications. We offer free 30-minute consultations.