“Auditing Begins Where Accounting Ends”
Accounting and auditing are very closely related. It is often said that auditing begins where accounting ends. Unless books of account are prepared and finalized, they cannot be audited.
Meaning of accounting and auditing
Accounting is the collection, classification, and summarization of transactions and data in order to prepare books of account and make financial statements.
As and when transactions occur, they are recorded in the books. These transactions are measured in monetary terms, recorded and then the results are communicated through the medium of financial statements. It is the responsibility of a company’s management to ensure that books are maintained properly and that financial statements are prepared following generally accepted accounting principles.
Once accounts are complete, they are audited to check their accuracy.
Thus, auditing is a critical and analytical examination of accounting records, books, and financial statements prepared thereon. It is the post-mortem examination of transactions that have been recorded.
The phrase: “Auditing Begins Where Accounting Ends”
It is correct to say that where the work of accountants ends, the work of auditors begins.
Accounting is concerned with the appropriate recording of financial transactions, whereas auditing is concerned with the verification of such transactions and reporting on the findings. As a result, accounting records serve as the foundation for verification.
When an audit exercise is carried out, it aims to ensure whether the corresponding accounts present a true and fair view of the state of affairs of the business or not.
To put it in another way, auditing reviews financial statements of a business concern, and such statements are nothing but a result of the overall accounting process. The ultimate outcome of the accounting process is the preparation of financial statements. And an audit is done to check the correctness and reliability of these financial statements. Thus, it won’t be wrong to say that auditing begins where accounting ends.
Is the auditor required to have accounting knowledge?
It must be noted that an auditor is an independent person appointed by a business entity to review its financial records and to form an opinion on the authenticity of financial statements.
Since the auditor has to check the accuracy and authenticity of accounts, it naturally calls upon him to have a thorough understanding of the generally accepted principles of accounting before he can verify his client’s books and financial statements.
Relationship between auditing and accounting
An accountant’s nature of work is constructive as he prepares accounts and financial statements. But the auditor’s work is analytical. He does not create any new information but rather increases the value of accounting reports already prepared by accountants.
Kell and Ziegler in “Modern Auditing” also explain the relationship between auditing and accounting.
Accounting is first and after it is done, the process of auditing starts. The relationship between the two can be seen in a tabular form as given below:
| Accounting | Auditing |
| Accounting analyses events and transactions. | Auditing is concerned with the review of the client’s internal controls. |
| An accountant records and summarizes data in accounting records. | An auditor checks the validity of accounting records. He obtains evidence and evaluates it in the light of assertions made by management. |
| Accounting deals with making financial statement assertions. Financial statements purport to say something about the business and its state of affairs. | The auditor determines the fairness of assertions and verifies conformity with recognized accounting principles. He checks whether the assertions are correct or not, i.e., whether the financial statements actually depict what they purport to show. |
| The accountant compiles records and prepares financial statements as per relevant standards and principles. He is not expected to review or report on them. | The auditor prepares an audit report on his findings. He has to submit his opinion on the truthfulness and fairness of financial statements. |
| Accounting involves the distribution of financial statements and the auditor’s report to shareholders. | An auditor delivers his audit report to the client. |
| Thus, accounting is done first. | Auditing starts where accounting ends. |
Final thoughts on “Auditing begins where accounting ends”
Auditing uses the theory of evidence to verify the financial information which is made available by accountancy. On the basis of conclusions drawn from the evaluation of evidence, the auditor gives his opinion on the fairness of financial statements. He should have good knowledge of accounting concepts and conventions.
Therefore, we can say that in the absence of auditing, reports and financial statements prepared by accountants would not be that reliable and they would be of little relevance to the final users of such reports. Hence, auditing is as necessary as accounting and it can’t be done unless accounts are prepared and financial information is presented.
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