Mb0051 Solved Assignment Summer 2012


Q.1 Write the differences between Auditing and Accounting?Ans:- Difference between accounting and auditingAccounting

is process of identifying, measuring, and communicating economic information tovarious users.Accounting is defined (by the American Institute of Certified Public Accountants) (AICPA) as"the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpretingthe results thereof. Today, accounting is called "the language of business" because it is thevehicle for reporting financial information about a business entity to many different groups of  people. Accounting that concentrates on reporting to people inside the business entity iscalled management accounting and is used to provide information to employees,managers, owner-managers and auditors..Accounting requires that an accountant must have accounting knowledge while auditing work required that an auditor must have accounting as well as auditing knowledge. Accounting isconcerned with current data. It is constructive in nature. Accounting is done on a day-to-day basis in business. It is the recording of transactions, the accounting for depreciation, debt,revenue, etc., that are all a part of reporting the company's financial activities.The main goal of accounting is to provide a company with clear, comprehensive, and reliableinformation about its economic activities and status of its assets and liabilities. This informationis presented in the form of accounting reports like the balance sheet, income statement, statementof changes in equity (also called

 shareholders’ equity statement 

), and statement of cash flows(also called

cash flow statement 

). By means of accounting reports it is possible to perform thefollowing (list non-inclusive):

Understand and re-allocate internal resources of the company to ensure its financialstability

Review profitability of the company’s economic activities

Understand the company’s cash inflows and outflows

Verify conformity of a company’s economic activities to government regulationsInternal users of accounting reports are managers, owners, and employees. External users of accounting reports are investors, creditors, and government.


is independent appraisal performed by an independent expert of an activity or event. Thereare operational, technical, ecological and other types of audit. Most commonly, nevertheless, thisterm refers to audits of financial statements.Audit of financial statements is the process of examining the financial statements and theunderlying records of the company in order to render an opinion as to whether the statements are


2. Prospective equity investors and lenders, to decide whether or not to invest.3. Investment analysts, money managers, and stockbrokers, to make buy/sell/holdrecommendations to their clients.4. Rating agencies (such as Moody's, Standard & Poor's, and Dun & Bradstreet), to assigncredit ratings.5. Major customers and suppliers, to evaluate the financial strength and staying power of thecompany as a dependable resource for their business.6. Labor unions, to gauge how much of a pay increase a company is able to afford in upcominglabor negotiations.7. Boards of directors, to review the performance of management.8. Management to assess9. Corporate raiders, to seek hidden value in companies with under priced stock.10. Competitors, to benchmark their own financial results.11. Potential competitors, to assess how profitable it may be to enter an industry.12. Government agencies responsible for taxing, regulating, or investigating the company.13. Politicians, lobbyists, issue groups, consumer advocates, environmentalists, think tanks,foundations, media reporters, and others who are supporting or opposing any particular publicissue the company's actions affect.14. Actual or potential joint venture partners, franchisors or franchisees, and other businessinterests who need to know about the company and its financial situation.

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