Accurate information is important for business decisions, and business leaders need assurance beyond that provided by financial statement audits.
Visit our blog, Business Audits – A Guide for Your Business, to understand audits clearly.
Deciding for the future of an organization is a challenging task.
It can be even more difficult if you’re concerned about systems or processes that are inaccurate, ambiguous or even unknown.
While bookkeepers will keep your payroll in order, accountants can provide different assurance services to help your company succeed.
Without the necessary assurances, you can’t be sure you have the right governance and risk management level.
So let’s explore Assurance services in more details,
Table of content
What are assurance services?
In simple words, assurance services are independent professional services, typically provided by Chartered or Certified Accountants, that improve the quality or context of the information for decision-makers in a company.
For instance, assurance services can include a review of any financial document or transaction, such as a contract, financial website, or loan.
This review certifies the validity and correctness of the item being reviewed by an accountant.
Assurance services can help to navigate the complexities, opportunities and risks in their partner networks by proactively monitoring and managing risks presented by third-party relationships.
Types of Assurance Engagement
There are two types of assurance, reasonable assurance and limited assurance.
1. Reasonable Assurance
Reasonable assurance is the high level of assurance regarding material misstatements, but not the absolute one.
A reasonable assurance includes the understanding that there’s a remote likelihood that material misstatements will not be detected or prevented on a timely basis.
To achieve reasonable assurance, an auditor must obtain sufficient appropriate audit evidence to reduce audit risk to an adequately low level.
This means that there’s some uncertainty arising from sampling since it is possible that a material misstatement will be missed.
Reasonable assurance refers to a degree of satisfaction of the auditor that the evidence acquired during the auditing backs the declarations incorporated in the financial reports.
Reasonable assurance is vital because it gives directions on the valuations of the soundness and dependability of the financial reports by auditors.
2. Limited Assurance
The limited assurance is sometimes called a negative assurance engagement. This type of engagement is the opposite of reasonable assurance engagement.
Normally, in Limited assurance, the auditor performs fewer procedures and reviews to support a conclusion that the financial statements are not prepared in line with a specific accounting standard.
This provides the level of limited assurance to the users.
In normal cases, the audit opinion in limited assurance engagement is negative.
|High but not absolute level of assurance
|Moderate/ lower level of assurance
|Opinion expressed positively
|Conclusion expressed negatively
|E.g. audit of financial statements
|E.g. engagement to examine a forecast
Who will benefit from assurance services?
Businesses and non-profits of all sizes and operating in several sectors can hugely benefit from these services as it enables them to tighten their production, ensuring maximum return on investment.
Businesses commonly use Assurance services for internal audit assurance when they smell something fishy, hampering their productivity and profitability.
For example, a manufacturing company can take help from an assurance service provider to properly assess its supply and utilization of raw materials.
The company can utilize the services to determine in what way or manner the raw material is being wasted or not put to the maximum use.
Non-profits can use these services to help determine if some of their valuable revenue is being used improperly or unjustifiably.
This ensures that they are able to maintain their status as a non-profit while contributing efficiently to their cause.
Internal audit is not the only area where these services are utilized.
Businesses can use services for intelligence purposes to increase their operational efficiency.
Often during an assurance, it is found that productivity in certain areas is falling behind the desired objective.
A proper assessment can help them take corrective measures and as such, boost their profitability and put their resources to the most efficient use.
If you want guidance for your year-end tax planning, visit our blog 10 Tips for starting year-end tax planning.
Elements of assurance engagements
Assurance services are composed of five elements:
|Elements of engagement
|Includes responsible party, intended users and a practitioner.The practitioner is the qualified person carrying out the assurance.The responsible party is a preparer of the information presented to the practitioner.The intended users rely on and make informed decisions regarding the outcome of the assurance.In case of an internal audit, the responsible party may be lower management, and the intended users would be senior management.
|The Subject Matter
|This includes the statement of cash flow, the income statement or the balance sheet.
|The Benchmark Criteria
|It is the presence of appropriate measures to check the subject matter mentioned above.
|Evidence of Meeting the Criteria
|The practitioner looks for evidence in the subject matter of being free of material misstatement.
|It’s a conclusion written in a report related to the above subject matter.
In short, by assurance services, you can assure stakeholders, investors, etc., that the organization is performing to expectations and its financial health is in order.
A proper quality assurance assessment can help you take corrective measures, boost profitability, and use resources efficiently.