The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: Explain the advantages and disadvantages of external auditors providing consulting services to their audit clients

Advantages and disadvantages of external auditors providing consulting services

•  The principal advantage of providing consulting services lies in the fact that auditors are best placed to provide such services, because they have an intimate knowledge of the operations of the company.
•  Equally, if they provide consulting services, the knowledge so obtained will be useful in conducting the audit, and experience in general of consulting better enables auditors to conduct their duties as auditors, because knowledge of other industries can be brought to bear on the client.
•  The principal disadvantage is that auditors often make a lot of money from such work, and it is argued that auditors are not objective in these circumstances because they would be unwilling to challenge directors or issue a qualified audit report for fear of losing the fees for consulting work.
•  The other disadvantage is that if they have implemented systems that produce the financial statements, they are unlikely to give a qualified audit report on the information that those systems produce.