Audit vs Non-Audit Services: Difference and Comparison

Financial analysis and reporting are the essences of a modern business. They are decision-making tools that help the industry see a snapshot of the company’s financial position.

Financial auditing examines an organization’s financial records to determine if they are in terms of the rules, regulations, and laws. In modern times, auditors have been trying to provide their clients with administrative services such as audits and non-audit.

Key Takeaways

1. Audit services involve the examination and verification of a company’s financial statements, records, and internal controls by an independent auditor to ensure accuracy, compliance, and adherence to accounting standards; non-audit services are any other financial services provided by an accounting firm that do not involve auditings, such as tax planning, management consulting, or financial advisory services.
2. Audit services focus on assessing the accuracy and reliability of financial information. In contrast, non-audit services can cover a wide range of financial and consulting services that support a company’s operations and decision-making.
3. Accounting firms provide both audit and non-audit services. Still, audit services are specifically geared toward verifying financial statements and ensuring compliance. In contrast, non-audit services encompass financial and advisory services to support a company’s financial management and strategic planning.

Audit vs Non-Audit Services

Audit services involve an independent and systematic review of an organization’s financial statements, internal controls, and compliance with applicable laws and regulations. Non-audit services include a wide range of consulting and advisory services, such as tax preparation and risk management.

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Comparison Table

Parameter of Comparison	Audit services	Non-audit services
Meaning	Audit services are those that evaluate the organization’s financial statements to ensure that they are done fairly.	Non-audit services are those provided by an audit firm not connected with reviewing the firm’s financial statements.
Cost	Audit services are considered a costly affair because audit firms not only offer consultancy services but also help evaluate the financial information of the audit firm.	Non-audit services are cost-effective since the auditors, having good audit knowledge, need not prepare the financial reports of their clients.
Speed of reporting	Auditors face strict time constraints within which they have to perform tasks essential for evaluating financial statements.	Time is not a problem when it comes to non-audit services.
Scope and nature	The main scope is to evaluate and ensure the fairness of the financial statements laid down in the company’s statute.	The scope and nature of non-audit services are not laid down in the company’s law and hence will be agreed upon between the entity and the audit firm.
Opinion	Audit services provide assurance services meaning an opinion is rendered on the fairness of the financial statements.	Non-audit services are any other services where an opinion is not rendered.

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What is Audit Services?

Audit services are the services provided by an auditor to their client to provide an accurate and fair representation of the financial position of the audit firm in terms of relevant financial reporting.

Audit services occur both in the private and public sectors and are essential to businesses, enterprise owners, stakeholders, lenders, and investors.

Given below are some of the various audit services provided by audit firms:

1. Operational, financial, and assurance services.
2. Consulting service.

Objectives of Audit services:

Running a business can be challenging, and business owners do not have the time to manage every business operation. This is where auditing services come in.

1. We are maintaining the efficiencies and effectiveness of all business operations.
2. Finding and preventing errors and fraud
3. Evaluating unethical business practices

Advantages of audit services:

An auditing service is essential because a company without audit services cannot create appropriate and fair financial reports for the firm. Here, given below are some of the advantages of audit services:

1. If there is any loss in the property or business, compensation is provided by insurance companies based on audited statements made by the auditor.
2. Financial institutions provide loans based on audited statements (of the last five years). Hence audit firms can obtain loans.
3. Auditing shows an organization’s profitability and financial position, which creates a reputation in the eyes of the public. Thus, audit services help to increase the goodwill of an organization.

Disadvantages of Audit services:

The significant risk in audit services is procuring false conclusions from the financial reports. Some of the other disadvantages of audit services include the following:

1. Time factor: Auditors would have to evaluate the financial book of accounts for an entire year within/in a few weeks. Hence, a significant lack of time is considered one of the auditing limitations.
2. An auditor’s qualification is directly proportional to the quality of the audit report. Unskilled auditors provide poor-quality audit reports.
3. The risk of poor-quality audit reports can further increase when there is a conflict of interest between the audit team members.

 

What is Non-Audit Services?

Non-audit services, unlike audit services, are those that are not related to evaluating the firm’s financial statements.  A qualified public accountant most commonly provides these services.

Advantages of providing Non-audit services:

1. Non-audit services performed by an auditor result in an increase in the revenue structure of a firm.
2. The auditors have a detailed understanding of the clients and hence are most likely to render a better audit service to their clients.
3. The clients are charged a lower audit fee since the non-audit services take less time to audit the financial statement of a firm/client.

Disadvantages of providing Non-audit services:

1. The auditor is likely to be biased since the nature of its financial statements is voluntary. Also, his client may threaten to take the business deal to another audit company unless the client gets an audit beneficial to them.
2. The auditor would instead not provide auditing or consultancy services to the same client since this would result in a conflict of interest between the clients. In this case, auditors must submit unbiased financial reports of a company, whereas consultants might have to become subjective to maximize company profits by avoiding high taxes.
3. Incorrect reports: The auditors and consultants study the information their clients give. If the client gives out false data, the auditors and consultants providing the required services to the client will unintentionally compose the same data, resulting in incorrect reports.

Non-audit services can be mainly divided into three categories:

a. Statue services which include:

1. legal necessities
2. contractual necessities

b. Efficient services regarding the current business knowledge that the auditor provides to their clients. These include:

1. fraud detection
2. tax planning

c. Majority of firms provide services such as:

1. management expertise
2. Human resource expertise.

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Main Differences Between Audit and Non-Audit Services

1. Audit services refer to those services that assess the firm’s financial statements and guarantee that all the reports are done fairly and honestly. Non-audit services do not deal with the evaluation of the financial statements of the firm.
2. Audit services would result in a costly affair since audit services deal with detailed audits that are expensive. So the auditor has to limit the scope of his audit services and use simple techniques. Non-audit services are cost-effective.
3. Audit services face strict time restraints since audit firms have to prioritize tasks and evaluate the firm’s financial statements instantly. Non-audit services comparatively take less time to form a report.
4. As laid down by the company’s statute, the main scope of an audit service ensures that there are no frauds or misrepresentations in the financial statements. Non-audit services are not written in the company’s laws and will be decided voluntarily.
5. In audit services, opinion is rendered on the fairness of financial statements. In non-audit services, such an opinion is not generated.

References

1. https://www.tandfonline.com/doi/abs/10.1080/00014788.1996.9729528
2. https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1628&context=soa_research

Last Updated : 11 March, 2024