Accounts and Auditing – What is the Importance of Accounting & Auditing?

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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 conformed 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 helps in identifying the areas of underperformance and those that require corrective measures. The information derived from accounting assist 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 fulfills 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 is 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.

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  1. Accounting is the process of recording all the financial transactions of a business systematically.
  2. A business can carry out its bookkeeping system in an excel sheet. It helps to maintain the books of accounts of a business easily.
  3. Web-based accounting or online-based accounting refers to storing data on a remote server. It is popularly called cloud-based accounting.
  4. Landing new clients is always a challenging task. It is important to identify the class of clients that require regular maintenance of their books of accounts.
  5. Maintaining accounts for any business is by no means an easy task. Even small businesses, irrespective of their size, present a challenge.
  6. A business proprietor must ask certain questions before outsourcing its bookkeeping or accounting to an outsourcing service provider.
  7. The bookkeepers used to maintain the books of account manually. However, now bookkeeping software is available to carry out the bookkeeping process of a company.
  8. The bookkeeping process requires following certain principles and the rules of debit and credit for accurate and proper bookkeeping.
  9. The single entry system of bookkeeping is where only every transaction affects only one account. It is simple and easy, thus, suitable for small businesses.
  10. The double-entry bookkeeping system is where two entries, i.e. debit and credit, are made for every transaction. Huge businesses follow a double-entry bookkeeping system.
  11. Bookkeeping is the process of recording day to day financial transactions of a business. The process and methods of bookkeeping are stated in this article.
  12. Bookkeeping and accounting are used interchangeably. However, there are differences between the two. This article states the differences between bookkeeping and accounting.
  13. Bookkeeping is the process of maintaining and recording all financial transactions of a business. Bookkeeping is the basis of the accounting of a company.
  14. The Income Tax Act deals with exemptions availed on the sale of a house property; capital gains from this sale may be re-invested.
  15. Earnings per share is a method used to review the performance of an entity. As the term denotes it means determining the profit attributable to each share.
  16. The auditor's job is of utmost importance. It can make or break the reliability of the financial statements and the information they provide.
  17. e Indian Accounting Standard -104 applies to all the insurance contract that an insurer issues including reinsurance contract
  18. Indian Accounting standard 8 is intended to enhance the reliability and relevance of an organization's financial statements.
  19. Section 241-246 of the Companies Act, 2013 lays down the provisions to effectively deal with oppressing and mismanagement in a company.
  20. Businesses or investments are now conducted globally, to ensure full transparency, India is moving towards convergence of Accounting standards with IFRS.
  21. A Carbon Credit is equal to one ton of carbon dioxide expelled in the atmosphere. The concept came into existence as a result of increasing awareness on the need for pollution control.
  22. DPT 3 is a return of deposits that companies must file to furnish information about outstanding receipt of loan or money other than deposits.
  23. Depreciation is a measure of loss of value of a depreciable asset arising from use, the passage of time or obsolescence either through technological or market changes.
  24. Annual return on Foreign Liabilities and Assets (FLA) is required to be submitted by all the companies which have received FDI and/or made overseas investment in any of the previous year(s), including the current year (July 15 every year).
  25. Financial accounting refers to collecting, summarizing and presentation of the financial information resulting from business transactions. Read more here.
  26. To record transactions every entity must pass journal entries which will then summarize into ledgers. Here, the Golden Rules of Accounting are applied. Read on here to know the different types of accounts
  27. Form 3CD is the statement of particulars that will be needed to be submitted to the income tax authorities along with the audited financial statements. Read about the 41 clauses in detail here.
  28. Bad Debt is a debt which is not collectible and is worthless to the Creditor. As soon as the debt is bad, the business should be allowed to write off as an expense in its income tax return. The eligibility of the deduction is on the existence of debts which is irrecoverable is totally under the law.
  29. Compliance for foreign investment in India for share capital or receiving share application money in foreign currency under RBI, Companies Act, MCA, Accounting Entries