6.What is the Importance of Accounting & Auditing?

Accounting and audit have a pivotal role to play in the financial record keeping process of any business though their roles are different in their focus. While accounting translates to a much wider field, encompassing everything from the organization to the management of the flow of money through the company, auditing is more of a specialized service.

Auditing is a part of the accounting world. It is an examination of accounting and financial records that is undertaken independently. This is done to determine if the company or the business undertaking has confirmed its operations to the laws and the generally accepted accounting principles.

Whether you are a small business or a complex organization, keeping track of all your financial activities can be a daunting task. And accounting does just that for you by keeping track of your business. It reliably records every aspect of financial activities taking place, which is a crucial piece of information for the management of your company. One key function of accounting is keeping you updated about the company’s performance. This may help in identifying the areas of underperformance and those that require corrective measures. The information derived from accounting assists in the long-term project planning of the business as well.

Why do we need accounting?

You know that if your books are kept up-to-date in accordance with the generally accepted accounting principles, it makes it possible for you to gauge your own performance and also make peer to peer comparisons. This is an important aspect of creating and maintaining credibility with your competitors and vendors. Your financial position determines how much credit you may be allowed and at what rates, etc. Investors will get a clear picture of the risk and opportunity your company could offer them. Keeping your accounts in place will serve you well when it is time to pay your taxes, file your returns and claim deductions.

What is the importance of auditing?

Accounting as a field is vast and comprises many areas of specialization within its framework. Auditing is one of such specializations. While accounting deals with the tracking and recording of financial transactions auditing fulfils the role of verifying the accuracy of the accounts. Auditing in many ways determines the integrity of the whole accounting system of a company. Auditing of financial statements on an annual basis is important even if you are a non-profit or a public company. This will add credibility for your accuracy. Even when auditing is not mandatory it is a good practise to have it in place.

The importance of auditing is particularly seen in case of errors in your accounts.
If your bookkeeping has not been up to date or in order, an auditor can make significant contributions in uncovering those details. If the details uncovered denote any presence of fraud or wrongdoings, a forensic auditors services are advisable. There is a further sub field even in the realm of audits that deals with cases verging on the lines of criminal activities.

There are different types of audits that can be availed depending on the need of the organization. Financial audits determine whether an organization’s financial statements accurately represent the results of the business’s financial operations. It makes sure that the organization’s financial position is in accordance with the generally accepted accounting principles. Compliance audits check if the company has functioned in accordance with the laws and regulations that may materially impact the financial statements. Financial and compliance audits are more often. However, they are not combined.

Economy and efficiency audits measure whether a business has been economically and efficiently managing its resources. These resources could include personnel (employees), property, space, etc; The audit also determines the causes of any problems and checks if the company has followed the laws and regulations in this regard.

Audits have to be conducted based on the Standards set by Auditing and Assurance Standards board.