Why is assurance service important?

If you’re running a business, it’s imperative that you keep accurate records for tax purposes, and to ensure that you’re complying with all financial regulations. While bookkeepers can keep your payroll in order, certified public accountants can provide different types of assurance services to help your company achieve success. CPA assurance services provide you with information that can help you better understand the areas where you’re spending and losing money so you can cut costs. CPA assurance services can also help you understand the areas in your business where you can grow or expand. The different types of assurance services include auditing and financial projections.

One of the most important of CPA assurance services is auditing, which involves the evaluation and analysis of your company’s historical financial information as it relates to clients and customers, and determining its accuracy. As a company owner, you want to ensure that your clients and customers are financially reliable. An assurance firm audit offers the value of an independent review of your clients and gives you the confidence that the information you have about those clients is accurate. Audits are considered the starting point for most of the different types of assurance services that CPAs offer. Some of the benefits your business will obtain from an audit include, more accurate financial statements, increased valuation of your business due to audited financial records, and improved internal controls. As a business owner, an audit can also help give you the peace of mind that your company is free of fraud. Depending on the nature of your business, you may want to audit your company once a year to ensure that you’re adhering to the best practices within your industry.

While the auditing work performed by an assurance firm is restricted to evaluating historical cost-based financial statements and records, assurance services are nearly limitless in the type of information that they can involve. The key is that the information is gathered and presented in a way designed for your company’s leaders and decision-makers to process and utilize. While the audience for audits largely is made up of external investors and creditors, the audience for other assurance services usually consists of internal managers and supervisors. In this way, assurance services work to support executives in their work, serving as a third-party provider of research and assessment that typically either would be the result of internal evaluations or would not be available.

The financial assurance services that CPA firms provide most often are related to internal financial projections, due diligence for a transaction involving another company, and reports on individual financial components within a company. CPAs that work for a financial assurance firm often evaluate existing information, but they might also provide context about the information, or assess the relevance of the information. In some cases, an examination of financial measurements at a company could indicate that the company is using insufficient data to measure a specific component of its finances.

Some services that fall into the category of assurance services are not directly related to finances, but an assurance firm can still provide you with value in these areas. For instance, CPA firms provide assurance services in the area of data security, performance claims, quality control, and environmental performance. With many of the non-financial assurance services, CPA firms are not the only types of companies that work in the field, so competition for the work can extend far beyond the competition for auditing work. In the area of data security, for instance, information security consultancies also provide assurance services.

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Assurance service is an independent professional service, typically provided by Chartered or Certified Public Accountants or Chartered Certified Accountants, with the goal of improving information or the context of information so that decision makers can make more informed, and presumably better, decisions. Assurance services provide independent and professional opinions that reduce information risk (risk from incorrect information).[1]

Definition and distinction from other services

The technical definition of assurance requires five components set out in the International Framework for Assurance Engagements:

1. A three-party relationship – the responsible party who prepares the information to be assured; the independent practitioner who assures the information; and the users who are expected to rely on the information. In the case of an audit, the responsible party is the management of the company, the practitioner is the audit firm and the users are primarily the shareholders.
2. Agreed subject matter – in the case of an audit, this would be the annual accounts of a company. However it could be almost anything in practice – the systems operated by a state lottery, a company's greenhouse gas emissions, controls over a supply chain etc.
3. Suitable criteria – this means that there must be some agreed framework to which the information may be compared. In the case of an audit, this will be the form of company accounts mandated by the appropriate laws, regulations and accounting standards in a particular jurisdiction. For other subject matter, it might be the design and proper operation (as specified) of the lottery systems and controls.
4. Sufficient appropriate evidence. The practitioner must obtain sufficient appropriate evidence that the subject matter information (the data related to the subject matter) agrees with the criteria.
5. A conclusion expressed in a written report.

Audits are therefore a type of assurance service. However, audits only test the validity of the assertions in financial statements, and are subject to regulation under International Standards on Auditing. Assurance engagements designed to test historical financial information are referred to as assurance reviews (these are regulated by International Standard on Review Engagements (ISRE 2400)), but assurance reports can be obtained over many other subject matters and will then be subject to ISAE 3000 or other individual Standards on Assurance Engagements.

Consulting services are not considered as assurance[2] because in consulting services, an accountant generally uses their professional knowledge to make recommendations for a future event or a procedure, such as the design of an information system or accounting control system. In contrast, assurance services are designed to test the validity of past data of the business cycles. Although there is no boundary to what can be tested by assurance services, professional accountants cannot accept any engagement for which they do not believe themselves to be competent.[3][4]

Agreed–upon procedures do not constitute an assurance procedure under the above definition, because no conclusion is given. However, they are often loosely referred to as "assurance". Similarly compilation engagements (which also have no conclusion) are often described as giving assurance, but are not strictly assurance engagements.

Guidance

Technical guidance for practitioners wishing to undertake assurance services can be found in ISAE (International Standard on Assurance Engagements) 3000 ISAE 3000 and in The Assurance Sourcebook[5] published by ICAEW (Institute of Chartered Accountants in England and Wales which also includes advice for companies wishing to choose between various assurance services.

See also

• ISAE 3000

References

1. ^ "Welcome to Assurance Services". American Institute of Certified Public Accountants. Archived from the original on 6 April 2005. Retrieved 14 June 2010.
2. ^ International Standard on Assurance Engagements 3000 (Revised 2013), paras 6 (c) and A1.
3. ^ "SSAE #10 Attest Engagements, AT §101, clause .21, second general standard" (PDF). American Institute of Certified Public Accountants.
4. ^ "International Standard on Assurance Engagements (ISAE) 3402, §13(a)(i)" (PDF). International Auditing and Assurance Standards Board.
5. ^ "The Assurance Sourcebook". icaew.com. Retrieved 6 April 2016.

Further reading

• "Does Industry Specialist Assurance of Non-Financial Information Matter to Investors?" Ferguson, Andrew.; Pundrich, Gabriel. AUDITING: A Journal of Practice & Theory: May 2015, Vol. 34, No. 2, pp. 121–146.
• Douthett, Edward B.; Copley, Paul A. (2009). "Are Assurance Services Provided by Auditors on Initial Public Offerings Influenced by Market Conditions?". Contemporary Accounting Research. 26 (2): 453–476. doi:10.1506/car.26.2.6.
• Ruhnke, Klaus; Lubitzsch, Kay (2010). "Determinants of the Maximum Level of Assurance for Various Assurance Services". International Journal of Auditing. 14 (3): 233–255. doi:10.1111/j.1099-1123.2009.00414.x.
• Hasan, Mahreen; Maijoor, Steven; Mock, Theodore J.; Roebuck, Peter; Simnett, Roger; Vanstraelen, Ann (2005). "The Different Types of Assurance Services and Levels of Assurance Provided". International Journal of Auditing. 9 (2): 91–102. doi:10.1111/j.1099-1123.2005.00262.x.
• Francis, Jere R.; Khurana, Inder K.; Martin, Xiumin; Pereira, Raynolde (2011). "The Relative Importance of Firm Incentives versus Country Factors in the Demand for Assurance Services by Private Entities". Contemporary Accounting Research. 28 (2): 487–516. doi:10.1111/j.1911-3846.2010.01053.x.
• Manetti, Giacomo; Becatti, Lucia (2009). "Assurance Services for Sustainability Reports: Standards and Empirical Evidence". Journal of Business Ethics. 87: 289–298. doi:10.1007/s10551-008-9809-x. hdl:2158/344320.
• Huggins, Anna; Green, Wendy J.; Simnett, Roger (2011). "The Competitive Market for Assurance Engagements on Greenhouse Gas Statements: Is There a Role for Assurers from the Accounting Profession?". Current Issues in Auditing. 5 (2): A1–A12. doi:10.2308/ciia-50083.

External links

• The International Framework for Assurance Engagements, ifac.org
• The Assurance Sourcebook

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