Assurance Services

What Are Assurance Services?

Assurance Services are professional assurance services offered by Chartered or Certified Public Accountants and Chartered Certified Accountants to improve information or the context of information and extension and make more informed decisions.

Information assurance services aim to reduce information risk by collecting gathered and professional opinions. In addition, assurance services attempt to improve the quality of information available to decision-makers. 

Providing independent assurance provides confidence that the information on which choices are based is credible, something that decreases risks, in this case, information risk.

By proactively managing and monitoring risks provided by third-party connections, assurance service providers will assist customers in navigating the complexity, hazards, and opportunities in their partner networks. 

Businesses utilize these services to improve the transparency, relevance, and value of the information they provide to the market and its investors. 

Many people discover that by better sharing business results, they may achieve long-term development and competitive distinction.

The International Framework for Assurance Engagements specifies five components for the technical definition of these services:

The responsible party

• The person who produces the information to be guaranteed, the outside practitioner who ensures the information, and the people who are assumed to rely on the information. 
• The responsible party in the audit is the company's management, the practitioner is the audit firm, and the users are generally the shareholders.
• The responsible party in the audit is the company's management. The practitioner is the audit firm, and the users are the shareholders.

Agreed subject matter

In the case of an audit, this would be a company's annual account. In practice, it could be almost anything a supply chain controls, etc.

Appropriate criteria

• This means that there must be some sort of agreed-upon framework in which data can be compared. The type of company account required by the appropriate laws, regulations, and particular jurisdiction in the case of an audit is this type.
• The subject can be the design and proper operation (as specified) of lottery systems and controls for other subjects.

Enough appropriate evidence

• The practitioner must gather enough evidence, and the subject matter information should meet the criteria. 
• As a result, audits are a type of assurance service. However, they only check the accuracy of the financial statements and govern the International Standards on Auditing.
• Assurance feedback means testing historical financial data and is governed by the International Standard on Review Engagements (ISRE 2400).
• However, assurance reports can be obtained on various other topics and governed by the ISAE 3000 or other individual Standards on Assurance Engagements.

Assurance Services' main purposes

Successful business operations, sound internal processes, and reliable data products must be relied upon by owners such as management, investors, governments, regulators, and other stakeholders.

Using these operational and reporting processes, users can make decisions and develop policies when data integrity or underlying processes are in question.

Assurance can be provided on a range of subjects that can be grouped into three main categories: data, processes, and reporting.

The types of data, processes, and reporting can be combined in reports that include data, process design, and any assertions the reporting organization has made.

It may be useful to involve an independent practitioner where an organization or its stakeholders are trying to build confidence in certain data and processes.

As an example, assurance reports provide a strong signal of credibility when formulated by an independent practitioner with relevant experience.

The demand for assurance has increased in recent years, so lenders and shareholders want assurance that their businesses will grow and be profitable in the long term.

Management seeks assurance that it complies with regulatory obligations that may be sector-specific such as oil, gas, financial services, or broader regulatory regimes.

Assurance is sought over acquired businesses such as mergers and acquisitions.

Management seeks assurance that it complies with regulatory obligations that may be sector-specific, such as those for oil and gas, financial services, or broader regulatory regimes.

In other words, assurance is sought to provide information to management so other users can make informed decisions.

Why is reasonable assurance important?

Most modern businesses are aware that accounting firms provide significant risk management, tax assistance, and general financial advising services, among other things. 

Few people are aware, however, that there are trustworthy accounting firms that also provide assurance services. 

With these high-quality assurance services, anyone can rest assured that their company is on the right track by adhering to rules and processes that will allow it to develop and thrive. 

From internal audits to complete fraud prevention and discovering gaps in your IT network, excellent organizations provide high-quality services that enable your company to increase its market share through correct and efficient resource use.

Each profession assumes some form of judgment that will involve the formation of an opinion, and these judgments aren't always accurate. 

Unlike many other nations, the U.S. criminal justice system requires high standards of proof. Reasonable doubt is required before anyone can be convicted, yet glaring errors still occur.

It is no secret that presumptions are in flux and upended by new evidence, even in science, where research, controlled experiments, and peer-reviewed results aim to bring us closer to a true understanding of reality.

Auditors do not provide absolute assurance. For example, professional judgment, maybe testing, the inherent limitations of internal controls, and accounting's use of estimates leave some amount of uncertainty.

Audit evidence tends to be persuasive rather than conclusive. Many critics of audit reports dislike the term "reasonable assurance" due to its open-ended definition and the large amount of wiggle room it leaves.

A GAAS audit provides reasonable assurance, not "absolute assurance," that the financial statements reviewed are free from errors, and accordingly, the auditor plans audit procedures so that these errors are discovered and corrected.

Auditors have made efforts to close the gap between reader expectations and assurance that audit reports deliver.

The organization has passed more disciplinary measures if there are issues in coordination with regulators. It has also updated its auditing standards to offer more explicit guidance.

Although these standards and definitions provide some clarity and concreteness, they lack specificity and depth.

Types of Assurance Services

The assurance services provided by certified or chartered accountants include the following:

1. Consulting Services and Advisory, and
2. Assurance Services (Audit)

Let us discuss the above briefly below.

Consulting Services and Advisory

The consulting services include the following range:

• Consulting and advisory services contain a study of existing business strategies and operations besides performances.
• It also contains advice on policies, evaluations, process enhancements, procedures, and other management demands for examining critical areas.
• The International Standards for the Professional Practice of Internal Auditing (IPPF) define consulting services as the provision of consulting services and related customer services that add value and improve governance.
• Moreover, working as a consultant requires engaging with a wide range of people in a variety of situations; thus, people skills and communication skills are essential. 
• The consultant must persuade clients to collaborate with you, steer the discourse between many stakeholders in the proper direction, especially in a complex political situation, engage with individuals both personally and online, and so on.

Assurance Services (Audit)

The scope of assurance services is as follows:

• An Assurance Service (as defined by the AICPA) is an independent professional service that provides information or context to decision-makers to make more informed and presumably better decisions.
• Services in assurance reduce the risk of inaccurate information by providing independent and professional opinions.
• According to the IIA IPPF standards, assurance services are defined as the impartial analysis of data to assess organizational governance, risk management, and control procedures.
• These types of engagements may involve financial, performance, compliance, system security, and due diligence.

Types of Audits

There are many types of audits, including of following:

1. Financial Audit: Looks into the accounting and reporting of financial transactions such as commitments, authorizations, and funds receipt and disbursement. 
   • The goal is to ensure that there are adequate controls over cash and cash-like assets as well as adequate process controls over resource acquisition and use.
2. Compliance Audits: Assessing a unit's adherence to laws, regulations, policies, procedures, federal and state laws, NCAA regulations, and federal-state OSHA regulations are examples of external requirements.
   • Recommendations call for improvements in processes and controls designed to ensure regulatory compliance.
3. Information System: (IS) AUDITS examines the internal control environment of automated information processing systems and how people interact with them.
   • IS audits assess system input and output and processing controls. It also audits backup and recovery plans, system security, and computer facility reviews. IS auditing projects can concentrate on both existing and developing systems.
4. Operational Audit: Also known as program or performance audits, operational audits examine the use of unit resources to determine whether they are being used efficiently and effectively to fulfill the unit's mission and objectives. 
   • An operational audit combines elements of a compliance audit, like a financial audit and an information security audit.
5. Administrative internal control reviews: These reviews focus on departmental-level activities that are integral to the University's major business operations. They scrutinize payroll and benefits, cash handling, inventory and equipment, physical security, grants and contracts, and financial reporting.
6. Investigative Audits: As needed, these audits concentrate on alleged civil or criminal violations of State or Federal laws and University policies and procedures, which may result in prosecution or disciplinary action. 
   • Investigative audits are warranted for internal theft, white-collar crime, misappropriation of University assets, and conflicts of interest.

What is an Assurance Service Agreement?

The goal of an assurance engagement is for members to check or measure a subject matter that is another party's responsibility against identified appropriate criteria and express a conclusion that gives the intended user a level of assurance about that subject matter.   

Members' assurance engagements intend to increase the credibility of information about a subject matter by evaluating whether the subject matter conforms to suitable criteria in all material respects and increasing the likelihood that the information will meet the needs of an intended user.  

In this regard, the members' conclusion conveys the level of assurance that the intended user may place in the credibility of the subject matter.

Other engagements that members perform that are not assurance engagements include the following:

1. Reporting responsibilities encompass a wide range of financial and non-financial data
2. Engagements aim to provide a high or moderate level of assurance
3. Attesting and direct reporting engagements
4. Internal and external reporting engagements
5. Collaboration between the private and public sectors

Members' engagements are not all assurance engagements. This is not to say that members do not engage in such activities, but these activities are not covered by this SAE.

Other engagements that members perform that are not assurance engagements include the following:

1. Consensus on procedures
2. Gathering of financial or other data
3. Preparation of tax returns with no expressed conclusion, as well as tax consulting
4. Business Consulting
5. Other consulting services

An assurance engagement is not an agreed-upon procedure engagement.

The party engaging the members of the intended use determines the procedures to perform, and the members provide a report of factual findings as a result of performing those procedures. The report's intended user may gain some assurance from the report's factual findings.  

The engagement is not intended to provide, and the members do not express a conclusion that provides a level of assurance. 

The intended user evaluates the procedures and findings and draws conclusions. 

Members may enter into an engagement as an agreed-upon procedure engagement but end up with a conclusion that provides some assurance.

Components of an Assurance Agreement

Engagements are defined as assurance engagements if they own the following characteristics:

1. A three-way relationship in which:
   • The participants
   • A liable party
   • A target audience
2. A topic of discussion
3. Appropriate criteria
4. A process of engagement
5. A decision

Relationship between three parties

Assurance engagements include three distinct parties:

1. The Members
2. A responsible party
3. An intended user 

The members reassure the intended user about a subject matter for which they are responsible. The responsible party and the intended user are from different organizations.

However, this is not always the case: a responsible party and an intended user may both work for the same company. 

For example, a governing body may seek assurance about the information provided by an organization's component. 

The relationship between the responsible party and the intended user must be viewed through the lens of more defined responsibility lines and may superset in the context of a specific engagement.

Members

The term "members" in this SAE includes "auditors" who perform an engagement to provide a "high level of assurance." Still, it also recognizes that assurance engagements usually deal with a broader range of subject matter and reporting arrangements.

Members must follow the requirements of the AICPA's Professional Ethics Statements. The following ethical principles govern members' professional responsibilities:

1. Independence 
2. Integrity
3. Objectivity
4. Professional competence and due care
5. Confidentiality
6. Professional Conduct
7. Technical standards

Responsible party

The person or persons responsible for the subject matter either as individuals or as representatives of an entity referred to as the responsible party. 

Management, for example, is in charge of the preparation of financial statements and the implementation and operation of internal controls.

The accountable party may or may not engage the members. Members may be hired either by management or by a third party.

Intended User

The intended user is the person or group for whom the report is being prepared for a specific use or purpose. 

The intended user can determine through an agreement between the members and the responsible party or those engaging or employing the members. In some cases, the intended user may be determined by law. 

One of the intended users may also be the responsible party. The intended user is the addressee of the report issued by the members, but there may be times when intended users other than the addressee. 

In some cases, the addressee will be the responsible party, but the report will be made available to the intended users.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Cost of Goods Manufactured (COGM)
• Fair Market Value
• Fraud Triangle
• Marginal Cost Formula
• Retained Earnings