Is Management Consulting just a glorified Audit?

Two things. Audit is a statutory requirement while consulting is not. But if you understand the way an external audit works, you will find a lot of similarities. I'm listing out some of these similarities but I could be totally wrong as I've never worked in consulting so most of this is based on what I've read about consulting.

1) Risk Assessment at the Audit Planning stage: Very similar to consulting engagements in that you identify the key risk areas and then decide how you're going to respond to those (either by increasing internal controls testing to see everything's working efficiently or if they are weak, by increasing the substantive testing to substantiate the transactions, balances and disclosures to see how the management arrived at those). Now this isn't exactly identical to consulting but from what I've read, consulting is about problem solving. You're given a problem, such as cash flow problems, and to solve that, you have to understand the operations of the client and identify risk areas (here though the focus is more on business risk rather than audit risk).

2) Internal Controls Testing: In an audit, you have to document internal controls via flowcharts/narrative notes/questionnaires/discussions with the management to identify possible deficiencies. In consulting engagements, you have to do the same and make recommendations if something isn't working out such as insufficient controls which make them susceptible to fraud as a result of human collusion or too many unnecessary controls which could be causing the cash flow crunch. As far as I understand, both auditors and consultants redesign the controls and make recommendations (as they are not responsible for direct implementation).

The key difference that I see here is the focus of the auditor on audit risk which is the risk of expressing a wrong opinion as a result of material misstatement, which is essentially a function of inherent (pertaining to the nature of the client), control and detection risk, while consulting is more about business risk.

But nevertheless, there are similarities and I see transferable skills (could be wrong?) and both of these professionals do not have to specialize in the subject matter that they're given and cover wide range of sectors and functions. Both provide an impartial and unbiased view. So shouldn't this make the transition from audit to consulting possible and smooth since they're so alike?

Again, I could be totally wrong but as I've mentioned earlier, I haven't worked in consulting so I'm open to any inputs, especially from those working/worked in consulting.

Comments (27)

Funniest
Aug 1, 2019 - 11:29am

One of you two clearly stole the others stapler...

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
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Aug 1, 2019 - 1:06pm

How is strategy consulting different then? Because big 4 risk advisory is more of an internal audit, not really consulting, and deals advisory is basically providing advisory or executing deals, not how they will do after the merger or securing debt/equity finance. If you could elaborate, it would be great.

Aug 6, 2019 - 11:36pm

Take for example, a market entry project - you have a company with a certain product / service and they're assessing whether it's a good idea to enter a particular region / market segment. Part of that may be assessing whether it's a wise move, strategically, and part of that may be designing a strategy to enter the market effectively.

How would you remotely relate that to an internal audit? This is more of a typical pure management consulting project (i.e. not the big 4 advisory stuff)

Most Helpful
Aug 1, 2019 - 12:02pm

Worked in both.

In short, they are similar, except you have to use your brain in MC.

Audit is basically "what did we do last year".
MC is basically that + "what can we do next year".

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Aug 1, 2019 - 1:03pm

Yeah, that's why I said their focus is on business risk and how they can better the clients operations et cetera. Audit still focuses on those areas but from a perspective of examination of historical information.

Aug 1, 2019 - 1:55pm

There are of course transferable skills: hard work, attention to detail, presentation making, project management and time management, data manipulation, accounting, etc.

Of course there are also a lot of aspects that prevent auditors from being successful strategy consultants: consultants should be client facing, outgoing, and future oriented and strategic rather than backward looking and compliance-driven. A lot of candidates struggle with open-ended tasks and defining a work scope when they are used to more box-checking exercises. Consultants ask "why" and "so what" a lot more than Auditors. "How" is maybe a bridge question that great Auditors think about and so do great Consultants.

That being said, there are a lot of different types of consulting. If you find yourself at a Big 4, there are Advisory opportunities in Transaction Services and Valuation type roles if you are oriented toward M&A and have a strong modeling ability. There are opportunities in Integration as well as IT consulting that are very process-oriented and many strong Audit candidates find strengths in those areas. Restructuring is another accounting-heavy team which has a bright future given where we are in the cycle. The limitation is really yourself and your own preparedness and personality.

Source: I worked at a Big 4 as Assistant Manager and Manager in Strategy Consulting as well as Transaction Services and interviewed a lot of internal candidates who wanted to come over from Audit. I did not come from an Audit background but from another Strategy Consulting shop after undergrad.

Be excellent to each other, and party on, dudes.
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Aug 1, 2019 - 2:01pm

It is a chicken-and-egg problem: by the time Audit will give you client-facing experience, you'll have a much reduced chance of moving over to another team. Try and get a "1" or "2" rating in your team and move over as a Senior Analyst or something. Not possible as a Manager without going to get an MBA.

Be excellent to each other, and party on, dudes.
  • 1
Aug 1, 2019 - 11:27pm

Maybe I'll chime in here as I currently work as a management consultant, doing operating model work for portfolio companies when not working on middle market commercial and retail bank mergers.

First thing you have to understand is why companies buy consulting services in the first place: 1) they don't want to do the work and it's easier to get someone else to do it... think managed service providers that monitor your security and infrastructure. 2) they CAN'T do the work as they don't have the in-house skills or bandwidth. Or 3) they aren't allowed to do the work, as is most of what's covered above, i.e. tax and audit.

When I use the term management consulting, I tend to gravitate toward option 2, in that the consultancy is providing advisory, diagnostic, or implementation services.

A typical project, as I'm working on now, is to get a portco to triple revenue in the next 5 years to support the investment thesis. It begins with a diagnostic highlighting opportunities to reduce manual activities, digitize paper based processes, and allow the company to scale or to stabilize the platform for easier bolt on acquisitions or joint ventures. Phase 2 is generally a detailed design of the solutions, vendor selections, etc., finally followed by a phase three of implementation and deployment.

Im fortunate in that my firm is a 50/50 split between management and tech consulting and can take a strategy straight through to hands to keyboard. There is, however, every possible flavor and combination out there. Hope that helps by way of example.

Aug 2, 2019 - 9:22am

As a former auditor I am surprised you guys have been as restrained in your answers. In short, OP, I think the answer is no. I'm sure a lot of consulting is overhyped, but when I look back, I can't believe the average audit partner can make that much money, and I'm convinced it's because of regulation alone.

If public companies did not require an external audit, would there be such thing as an eight-figure audit engagement? I don't think there should be now. And at the same time I know McKinsey earns their fees on the high profile engagements.

That said, yes I knew some excellent auditors who were able to go into the sexier roles later on (or get overpaid as partners lol)

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Aug 13, 2019 - 5:30pm

As someone who previously worked in big4 Audit and wasn't a huge fan (see my username) and now works in Corporate Strategy (although never worked in Consulting), I can tell you that the type of work that a strategist does is entirely different than an auditor. There are certainly some skills from Audit that I find help me in my current role including:

1) Understanding of financial statements - all those footnote tie-outs are actually paying off because I feel very comfortable going through 10-Q/K's and know where to find information which is helpful when doing competitor analyses

2) Project Management - In Audit, you are able to move up quickly and start taking ownership of entire areas of an audit early on. The project management skills you pick up here are very helpful for many different careers

3) Soft skills - I was lucky that I gained a good amount of client exposure in my 2.5 years of audit so I was able to develop soft skills that I severely lacked right out of college. This helps in my current role where my 'client' is the business/product leader who I am working with.

4) Endurance - I have worked multiple consecutive 100 hour weeks during audit busy season so when I work the occasional 80 hour work week now, it doesn't phase me

These are all very helpful skills and useful in many different careers, but you need more than this to be an effective strategist. In Audit, you do not pick up any big-picture thinking, you don't work on anything forward-looking or ever have to synthesize lots of different data to arrive at a perspective on an opportunity. For example, one thing I am working on currently (which I would have never been able to do coming straight out of Audit) is the following problem: Should we (my company) expand internationally, and if so, which regions/countries should we invest in and what should be our operating model?

The skills you pick up in Audit just wouldn't be enough to be able to come up with an approach to effectively answer a question like that. I think strategy consulting is a big leap from Audit, but I do think you can probably make the transition to other types of consulting within the big4. I needed to make multiple different roles after I left Audit before I was able to land in my current gig

Nov 12, 2019 - 3:53am

"It is difficult to digest the title. It makes sense though after I started reading the actual blog as you have mentioned that you don't have consulting experience. But there is definitely more than marginal difference between the two.
"

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Nov 23, 2019 - 2:13pm

Completely depends on the type of consulting you go into. As a former auditor, a lot of "consulting" that is offered at public accounting firms is very similar to audit. It just depends on where you land, some consulting gigs are focused completely on changing the company in the future, while audits are focused on assessing the past, and while certain audit skills are applicable, they will not help drive the decision making. If a Company is looking to trim is product offering, aka reducing SKU's, divisons or plants it would be helpful to determine historical product margin on all SKU's, divisions or plants. Determining the demand (recurring vs seasonal). which is an auditor can easily do. but deciding whether or not to sell the division, intangible property, machinery or simply exit the business does not rely on audit skills. Or if you want to expand SKU's, divisions or plants, Deciding what new geographies to offer your product and the affect on the cash flow and loan covenant compliance of building a new factory and the ability to finance it is a consulting move, but does not rely on many audit skills. selecting a property that has the appropriate electricity, water connections, location that is close to trucking lanes and labor is more consulting than audit. Determining the ROI of closing or expanding divisions is more finance, but consulting related, auditors don't look at investment ROI for forecasting, just the past. On the other hand, doing and anti money laundering engagements or ensuring a company is in compliance with their insurance policies is more audit than consulting.

I can elaborate more, but there is big difference in "consulting" that is affecting the future and audit related "consulting" that examines the past for financial reporting or compliance issues. Is due diligence really consulting, its an audit of historical EBITDA, but is in every big 4 consulting practice. but most would argue you are not consulting management, you are presenting the results of an EBITDA audit to make a decision to invest. The buy-side people forecasting the combination of the two companies and the affects on profitability, free cash flow and lending compliance is really consulting.

Jan 10, 2022 - 4:42pm

Is HF just glorified throwing darts?

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