Posted on August 6, 2019 by chris in News

Regardless of the size of a business or the industry in which it operates, it’s likely that it will require the services of a financial expert to help collect and maintain adequate information about its business transactions, as well as filing accurate tax returns at the end of the year.

While accounting and auditing are both terms denoting practices connected to these activities, they have very different meanings. Of course, given that they both deal with the financial records of a business, there are many similarities between accounting and auditing, but they are also hugely distinct in that one effectively regulates the other. Put simply, accounting is the process of keeping financial records; auditing is the process of checking that those records are accurate.

While that’s the essence of the difference between accounting and auditing in a nutshell, below you’ll find slightly expanded definitions of each practice, along with how they vary more specifically from one another, in order to fully clear up any confusion.

What is accounting?

Accounting is a catch-all name given to the process of comprehensively recording, classifying, summarising and analysing each and every financial transaction made by a business. It is a continuous process that takes place day-to-day and can be (though isn’t always) carried out by inhouse staff. As well as providing the company with the information it needs to file accurate tax returns, it also gives information about the ongoing performance of the business and can be used to try and attract new investors or clientele.

What is auditing?

By contrast, auditing is the process of critically examining the financial records of a business to ensure they are a true and fair reflection of reality. As such, auditors check that accountants have done their job right and hold them – excuse the pun – accountable. Unlike accounting, auditing is a periodic process (normally occurring on a quarterly or annual basis) and is most often carried out by an independent party with no ties to the company that has been registered and appropriately authorised to carry out audit work. Most larger companies and all businesses with shares on the stock exchange must contract an external auditor to check the veracity and validity of their accounts.

Do I need an accountant and auditor for my business?

Unless your company is an incredibly small one which prefers to handle its accountancy needs inhouse, the chances are that it’s a good idea to hire an external accountant (such as Profile) to handle all aspects of the financial side of your business. You can contract such services on a temporary basis (for example, during excessively busy periods of the year or when it comes to filing tax returns) or on a year-round one, which can provide greater reassurance that your accounts are being properly managed and offer you greater insights into how and where you can improve.

If you are anything other than a sole trader, partnership or other small company that is exempt from external audits, you are required by law to contract an independent registered auditing firm to conduct an audit on your records once a year. Fortunately, Profile are now registered to carry out audits and so can provide the expertise and knowledge to ensure your records are fully up-to-date and compliant with the relevant legislation.

To learn more about the range of services we offer and how we can help your business not only meet its legal obligations, but also prosper and grow, give us a call on 020 8432 2289 or drop us an email at [email protected]. We’re here to help.