We explain that what is the difference between audit and non-audit services in tabular form. Financial reporting and analysis are the essences of a modern business. They are decision-making tools that help the company see a snapshot of the company’s financial situation.
Financial auditing is a process of examining an organization’s financial records to determine if they comply with rules, regulations, and laws. In modern times, auditors have been trying to provide executive services such as audit services and non-audit services to their clients.
The main difference between two-audit services and non-audit services is that audit services are usually a legal requirement for most entities, whereas non-audit service requirements are voluntary.
The other differences can be shown in the following comparison table:
Comparison table between audit and non-audit services
Comparison Audit Services Parameter Non-Audit Services
|Audit services refer to those services that evaluate the financial statements of the organization to ensure that they are performed fairly.
|Non-audit services are services provided by an audit firm that is not related to the review of the firm’s financial statements.
|Audit services are considered an expensive affair because audit firms not only offer consulting services, but also help to evaluate the financial information of the audit firm.
|Non-audit services are cost-effective as auditors, who have good auditing knowledge, do not need to prepare their client’s financial reports.
|Auditors face strict time constraints within which they must perform essential tasks for the evaluation of financial statements.
|Time is not an issue when it comes to non-audit services.
|Scope and nature
|The main scope is to evaluate and ensure the fairness of the financial statements that have been established in the company’s bylaws.
|The scope and nature of the non-audit services are not established in company law and, therefore, will be agreed between the entity and the audit firm.
|Audit services provide assurance services, which means that an opinion is issued on the fairness of the financial statements.
|Non-audit services are any other service where an opinion is not issued.
What are audit services?
Audit services are the services that an auditor provides to his client, to provide a faithful and fair representation of the financial situation of the audit firm, in terms of relevant financial information.
Audit services are carried out in both the public and private sectors and are essential for companies, business owners, stakeholders, lenders, and investors.
Below are some of the various audit services that audit firms provide:
- Operational, financial, and assurance services.
- Consulting service.
Objectives of the audit services:
Running a business can be challenging, and business owners often don’t have the time to manage all business operations. This is where audit services come into play. The main objectives of the audit services are:
- Maintain the efficiency and effectiveness of all business operations.
- Find and prevent errors and fraud
- Evaluation of unethical business practices
Advantages of audit services:
An audit service is very necessary because a company without audit services could not create adequate and fair financial reports for the company. Here are some of the benefits of auditing services:
- If there is any loss in property or business, insurance companies provide compensation based on audited statements made by the auditor.
- Financial institutions make loans based on audited statements (from the last five years). Therefore, auditing firms can obtain loans.
- The audit shows the profitability and financial position of an organization that creates a reputation in the eyes of the public. Therefore, audit services help increase the goodwill of an organization.
Disadvantages of audit services:
The biggest risk in auditing services is getting false conclusions from financial reports. Some of the other disadvantages of audit services include:
- Time factor: Auditors would have to evaluate a full year’s financial ledger within a few weeks or a few weeks. Therefore, a significant lack of time is considered to be one of the limitations of the audit.
- The rating of an auditor is directly proportional to the quality of the audit report. Unqualified auditors provide poor-quality audit reports.
- The risk of poor quality audit reports can be further increased when there is a conflict of interest between members of the audit team.
What are non-audit services?
Non-audit services, unlike audit services, are those services that are not related to the evaluation of the firm’s financial statements. These services are usually provided by a qualified public accountant.
Advantages of providing non-audit services:
- Non-audit services performed by an auditor result in an increase in the revenue structure of a company.
- Auditors have detailed knowledge of clients and are therefore more likely to provide a better audit service to their clients.
- Clients are charged a lower audit fee as non-audit services require less time to audit the financial status of a company/client.
Disadvantages of providing non-audit services:
- The auditor is likely to be biased as the nature of his financial statements is voluntary and his client may also threaten to take the business deal to another audit firm unless the client obtains an audits beneficial to him.
- The auditor would prefer not to provide any type of auditing or consulting services to the same client, as this would lead to a conflict of interest between clients. In this case, auditors must present unbiased financial reports of a company, while consultants may have to become subjective to maximize the profits of the company while avoiding high taxes.
- Incorrect reports: Auditors and consultants study the information provided by their clients. In case the client provides incorrect data, the auditors and consultants, who provide the required services to the client, will inadvertently compose the same data, resulting in incorrect reports.
Non-audit services can be divided mainly into three categories:
to. Statue services include:
- legal needs
- contractual needs
second. Efficient services in terms of current knowledge of the business that the audits or provides to his clients. These include:
- fraud detection
- tax planning
C. Most companies provide services such as:
- management experience
- Experience in human resources.
Read Also: GST Vs Income Tax
Main differences between audit and non-audit services
- Audit services generally refer to those services that evaluate the financial statements of the firm and ensure that all reports are made fairly and truthfully. Non-audits services are not concerned with the evaluation of the firm’s financial statements.
- Audit services would be a costly affair as audit services deal with detailed audits that are costly. Therefore, the auditor has to limit the scope of his audit services and use simple techniques. Non-audits services are profitable.
- Audits services face strict time constraints as audits firms have to prioritize tasks and evaluate the firm’s financial statements in no time. Non-audits services, comparatively, take less time to form a report.
- The primary scope of an audits service, as established by company statute, ensures that there is no fraud or misrepresentation in the financial statements. Non-audit services are not written in company laws and will be decided voluntarily.
- In auditing services, an opinion is issued on the fairness of the financial statements. In non-audits services, no such opinion is issued.
Auditing is an important business function that involves evaluating and inspecting the books of accounts to authenticate their accuracy and reliability. An organization relies on audited accounts to make important financial decisions.
The above study investigates and produces a contrast between the two ideas: audits services and non-audits services.
It talks about the scope of audits services and the gain of reviewing and evaluating financial information, facts, or data to minimize risk and achieve the various objectives and goals set by an organization.
It also gives us an overview of the nature of non-audits services that do not involve auditing a company’s financial statements and the pros and cons that come with when the services are adopted by an organization.