What are the three most commonly sought assurance services?

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.

Understanding Assurance Services

Assurance focuses on analyzing the processes, controls, and operations of an organization. It looks to determine whether the business is operating with appropriate accuracy. For example, a CPA will be hired to provide an assessment of a business’s procedures surrounding the preparation of their accounting and/or financial records.

However, entities that provide the assurance service are not strictly analyzing financial systems; they can also look at other areas of the business, such as IT systems, internal controls, or other procedures in different departments.

Also, assurance services entail the testing of validity within past data of the business cycle. The most well-known assurance service is financial statement audits, but they include a wide range of other professional services.

Assurance Services – Components

Assurance or engagement services are composed of five elements. Below is a list as identified in the International Framework for Assurance Engagements:

It is interesting to note that on the opposite end of the spectrum is consulting. Consulting services create forward-looking information for an organization to better position itself. For example, implementing a 12-month rolling cash forecast to make long-term decisions. Assurance assesses past information and ensures it is valid.

Practical Example

Let’s look at an assurance through the following example. Amplified Inc. is a public airline and offers passenger airline service. The company is being audited for Q1 2019. Its balance sheet shows $2 million in accrued fuel as of March 31, 2019.

Mr. Hahn works for the public accounting firm performing the audit. He wants to verify the accuracy of the accrued liabilities by selecting a sample of 30 entries. The Assistant Controller of Amplified Inc, Miss Lock, assumes the responsibility of providing backup. Fuel slips signed by the pilots, per location, and the published rate per liter are then provided.

Mr. Hahn verifies the completeness and validity of the information presented. He concludes that the accrued liabilities are representative of actual amounts owing.

Changes in Assurance

In the U.S., the Sarbanes-Oxley Act of 2002 became a law to protect users of financial information. Major accounting scandals, such as Enron, degraded confidence in the world of investing. As such, there became wider enforcement of reliable and accurate disclosures.

Another earlier and critical step in improving assurance services goes back to 1993. The American Institute of CPAs (AICPA) held an Audit and Assurance Conference. It sought to address concerns by users of such services and their decline in use.

A special committee on assurance services formed shortly afterward and issued a report. In 1997, the report of the special committee voiced the needs of these clients.

More Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

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