Assurance in Accounting: What It Is and Different Types | Indeed.com

Assurance in Accounting: What It Is and Different Types

Updated June 24, 2022

Many companies use the assurance services of auditing firms or certified accountants to verify the correctness and validity of their financial information. Companies use assurance services for risk assessment, information systems reliability, e-commerce, healthcare performance and business performance. Accountants often use this independent professional service to review financial documents and improve the quality of the information contained in those documents. In this article, we discuss what assurance in accounting is, the components of assurance services, the different types of assurance services and how auditing compares to assurance.

What is assurance in accounting?

Assurance services focus on analyzing the processes, operations and controls of a company to see if it is operating with appropriate accuracy. Assurance uses past data from business cycles to analyze and improve the quality of information within a company's department and to help individuals in that department make informed decisions. The most common assurance service is the review of financial statements for accounting departments. Auditing firms provide assurance services for analyzing financial systems as well as procedures in other areas of business like internal controls or IT systems.Some companies use assurance services because the law requires them to, while other companies use these services for voluntary, regulatory or compliance reasons. Clients use assurance services to navigate complexities, risks and opportunities by proactively managing and monitoring risks with partner networks or third-party relationships. Companies find that assurance services help achieve higher performance, create sustainable growth and provide competitive strategies for differentiation.Related: The Big 4 Accounting Firms: Who They Are, History and What You Need to Know

Assurance components

There are five elements that make up assurance services:
  • Three party relationship: This includes the responsible party who prepares the information, the practitioner who receives the information and the intended users who make informed decisions based on the assurance's outcome.
  • Subject matter: There must be a specific subject matter for assurance services. Typically, this is the balance sheet, income statement or statement of cash flow.
  • Benchmark criteria: This is the presence of measures or criteria, such as the International Financial Reporting Standards, that the assurance professionals check the subject matter against.
  • Criteria evidence: The assurance practitioner completes this by making sure the subject matter is accurate and of high quality.
  • Assurance report: This is the written outcome of the assurance service that describes and concludes the subject matter.
Related: 10 Types of Accounting and 5 Important Accountant Careers

Assurance types

There are a variety of assurance services that auditing firms and certified accountants can offer. Here are five common types of assurance services:

Assessment of risk

Investors and managers who have concerns about business risks or changes in fortune use assurance services to get a profile of the company's business risks. Companies use assurance services to identify the full scope of risks, then find precautions to take against those risks. A comprehensive profile helps evaluate whether the company has appropriate systems in place that can effectively manage their risks.Related: Business Operations: How to Do a Risk Assessment

Reliability of information systems

Assurance services can help determine if a company's internal information systems, financial or non-financial, are providing reliable information for the company's operating decisions. Companies, managers and employees need accurate and reliable information from the start rather than working with corrected data after the fact. Assurance services confirm that this information within the company's internal systems is accurate and reliable, allowing for more efficient operations.Related: What is an Accounting Information System? Your Guide to AIS

Electronic commerce

Electronic commerce, or e-commerce, continues to become more common, but peoples' lack of confidence in electronic commerce systems often hinders this growth. Assurance services can help to assess whether an electronic commerce system and its tools are dependable. Assurance practitioners can provide companies with appropriate data regarding the integrity, privacy, security and reliability of the information their e-commerce system is producing. This can foster a sense of trust in the e-commerce system that the organization uses with its employees or clients.Related: What is E-commerce? Definition, Types and Importance

Business performance measurement

Shareholders and management often require more information than just financial statements when conducting a thorough business performance review. When professionals perform assurance services, they can let a company know how its performance compares to its competitors. They evaluate whether a company's performance measurement system is using reliable metrics for assessing the company's goals and objectives. This can create a more balanced and holistic view of a business' performance than only looking at financial statements might provide.Related: Using Key Performance Indicators (KPIs) to Achieve Goals

Healthcare performance measurement

Healthcare recipients and employers often express concern about the availability and quality of healthcare services. The current healthcare system encourages companies to deliver managed care plans such as HMOs, PPOs and EPOs. Assurance services can provide information about the effectiveness of the services offered by these plans and their associated healthcare providers.Related: A Comprehensive Guide To Revenue Cycle Management
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Assurance versus audit

Assurances and audits are two different processes that professionals use to evaluate the financial records of an organization. Assurances and audits often go together because audits are a type of assurance. Auditing shows if there is any intentional misrepresentation of financial records, misuse of funds or fraudulent activity.Here are the five key differences between assurances and audits:
  • Definition
    • Assurance: It verifies a company's accounting records per accounting standards and principles.
    • Audit: It evaluates a company's accounting entries for accuracy and continuity with financial statements.
  • Process
    • Assurance: Companies complete this step first.
    • Audit: Companies complete this step second.
  • Provider
    • Assurance: An auditing firm or certified accountant is the provider of assurance services.
    • Audit: An internal or external auditor is the provider for audits.
  • Goal
    • Assurance: It assesses the quality of information and helps with decision making about a company's financial records.
    • Audit: It shows whether there is any misrepresentation, misuse or fraud in a company's financial records.
  • Uses
    • Assurance: It shows stakeholders that a company fairly and accurately presents accounting entries and meets accounting standards and principles.
    • Audit: It shows stakeholders a company's integrity and demonstrates that there is no misuse, fraud, misrepresentation of information or other dishonest activities.
Auditors & assurance occupations
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