Accounting is process of identifying, measuring, and communicating economic information to various users.
The main goal of accounting is to provide a company with clear, comprehensive, and reliable information about its economic activities and status of its assets and liabilities. This information is presented in the form of accounting reports like the balance sheet, income statement, statement of changes in equity (also called shareholders’ equity statement), and statement of cash flows (also called cash flow statement). By means of accounting reports it is possible to perform the following (list non-inclusive):
- Understand and re-allocate internal resources of the company to ensure its financial stability
- Review profitability of the company’s economic activities
- Understand the company’s cash inflows and outflows
- Verify conformity of a company’s economic activities to government regulations
Internal users of accounting reports are managers, owners, and employees. External users of accounting reports are investors, creditors, and government.
Audit is independent appraisal performed by an independent expert of an activity or event. There are operational, technical, ecological and other types of audit. Most commonly, nevertheless, this term refers to audits of financial statements.
Audit of financial statements is the process of examining the financial statements and the underlying records of the company in order to render an opinion as to whether the statements are fairly presented. Most commonly financial audits are performed on a company’s request for the benefit of financial information users (i.e. internal and external).
Auditors analyze and compare accounting reports and confirmation documents as well as verify conformity of a company’s accounting with established standards and regulations. Therefore, the main goal of an audit is to perform thorough evaluation of a company’s financial records and reports and provide a company with improvement recommendations based on that evaluation.
As we can see, accounting provides financial information to users of such information, and auditing is a means to ensure such information is reliable and comforts with established rules and regulations.