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CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing

Which of the following is a distinction between accounting and auditing?

Accounting involves recording, classifying and summarising transactions to prepare financial statements, while auditing begins after that and independently examines those records and statements to report an opinion. The sequence is accounting first, then auditing, so the options reversing this are wrong.

  1. AAccounting begins where auditing ends, as the auditor records the transactions first
  2. BAuditing is done by the entity's own accountant, whereas accounting is done by an independent outsider
  3. CAccounting records, classifies and summarises transactions, whereas auditing examines those records and the statements prepared from them and reports on themCorrect
  4. DAccounting ends with an opinion on the statements, whereas auditing ends with the preparation of the trial balance

Explanation

Accounting is the preparation function: recording, classifying and summarising transactions. Auditing starts after accounting ends, examining the records and statements and expressing an opinion. The other options reverse the roles or the sequence.

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