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What’s the difference between financial management and auditing?

financial management and auditing

For someone new to finance, financial management and auditing may sound synonymous. But when you’re in the finance world, you need to understand the difference between financial management and auditing.

For someone in finance, saying financial management and auditing are similar is like saying apples and mangoes are identical because they’re both fruits. They do fall under the same broad category of finance but, their specialization and responsibilities differ.

This article will talk about what auditing is and what financial management is. This will help you differentiate between financial management and auditing and help you understand them better.

What is financial management?

What is financial management

Financial management deals with planning and organizing a company’s economic projections. It is a broad concept. As a financial manager, you are expected to be responsible for the allocation and tracking of the financial resources of a company. 

Financial management is responsible for the proper use of funds. They make strategies for acquiring the required capital and where it will be utilized. However, everyone should know some important financial tips to manage finances properly.

Nowadays, computers can handle a wide range of jobs, including personal finance management with some of the best apps available.

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What is auditing?

What is auditing

Auditing is the examination and evaluation of the financial position of a company. An auditor ensures that the financial statements align with the industry standards and the country’s laws. 

Auditing is mostly independent. The auditors make sure that the financial records comply with relevant regulations. They are usually not an employee of the company. This is to ensure there is no ulterior motive in the evaluation and the examination is fair.

What makes financial management different from auditing?

Responsibility

Financial management is responsible for the proper utilization of the funds of the company to enhance the financial performance of the company. They ensure that the company is stable and sustainable. The financial managers ensure that the company does not just survive in the market but grows too. 

An auditor’s job is to simply cross-check if the data and the number stated in the financial statement provided by the financial managers do not have errors or any signs of fraud.

Relation with the company

Financial managers are the core members of the company. They partake in the decision-making of the company and want the company to grow sustainably.

Auditors, usually, are independent. This means they are not a member of the company. They do not participate in board meetings and are not employees of the company. They are merely hired for the sake of auditing the financial reports of the company and making sure there are no errors or fraudulent activity in the preparation of the financial statements of the company.

Education qualification

Financial management will require you to hold a bachelor’s degree in business administration, accounting, finance, or economics. A competitive company will require you to have a master’s degree in finance or economics.

For an entry-level auditor, you will require a bachelor’s degree in accounting or finance or both. A competitive company will require you to have a master’s degree in accounting. Becoming a CPA(Certified Public Accountant) can improve job perspectives.

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Reporting

The Financial management reports to the CFO, the Corporate Finance Officer. The report from auditing is reported to the Board of directors and the shareholders.

Conclusion

Financial management and auditing are both an essential part of any business. One helps to strategize to help the company grow while the other keeps the data and methods used in check. 

Both of these function plays an important in increasing the shareholder’s value by increasing the company’s valuation. Non-laws are broken and no shortcuts are taken so the company does not face any problems in the future.

FAQs

What is the difference between an internal audit and a management audit?

An internal audit is done by the internal auditors of the company, management is done by auditing experts from a different company.

What is the relationship between auditing and management?

Management can give the auditors knowledge about the business, the changes, and the plans. This can be of help when auditors are auditing for the company while knowing that all the financial data is error-free and does not break any legal laws.

Are auditors part of the management?

A company can have internal, and external auditors. While internal auditors are part of the company, external auditors are not part of the company and should ideally be independent.

Is auditing harder than financial management?

Financial management and auditing are both difficult tasks to master. Although financial management is comparatively more vast than auditing.

What is harder financial or management accounting?

Managerial accounting is more difficult than financial management.
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