Whether you own a business or are a trustee for a self managed super fund (SMSF), you have probably considered using the services of an accountant or an auditor – or both. But considering that an accountant will be responsible for your audit, exactly what is the difference between accounting and auditing?
Accounting is described as being the recording of economic events; whereas auditing is the process of verifying whether those recordings accurately reflect the events they are recording. In other words, the auditor will be reviewing the work of the accountant to ensure that the accountant’s work is accurate. Inaccuracies may be a result of poor work on the part of the accountant, or they may be a result of intentional misrepresentation of the facts by either the accountant or their client.
From a public accountant’s perspective, they are most likely to be called upon to perform one of three common audit services, which are:
Financial Statement Audits: which is performed to verify the accuracy of the financial statements that an organisation has presented. An audit of this type is particularly important for companies listed on the stock market, as investors are basing investment decisions on the figures detailed in the organisation’s financial reports.
Compliance Audits: confirms whether an organisation is compliant with particular rules or regulations specific to their business or industry. These audits are often done by the organisations themselves, either by employees or by external auditors contracted for that purpose. Government organisations and those businesses working closely with government agencies have a greater need for compliance audits because of the high level of regulation within government.
Performance Audits: is a more broad-stroke audit that covers all aspects of a business, not just its financial reports. Can the business improve its performance through streamlining processes? Administrative improvements? Staff training or cutbacks? All of these areas could be reviewed in a performance audit with the aim of reducing waste and inefficiency and improving profitability.
As alluded to earlier, auditors can be either internal or external – they may be employed by the ATO (who audit tax returns), the Auditor General (whose office audits government departments), a public accounting firm (who primarily audit publicly listed and other large companies) and internal auditors who provide auditing services for their employers. In addition, it may be a requirement, such as an annual audit for SMSFs or a voluntary process, such as an internal performance audit for a company looking to review its position.
By Jennifer Lowe
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