Are Assurance and Audit Services the Same?
Demystify assurance and audit services. Learn their distinct definitions and the precise relationship where audit is a specific type of assurance engagement.
The terms “assurance” and “audit” are often used interchangeably, but they have distinct meanings and a specific relationship. This article clarifies these terms, explaining their unique roles and significance in enhancing information credibility.
Understanding Assurance Services
Assurance services involve an independent professional evaluating information to enhance its reliability for various users. The primary objective is to improve information quality, enabling decision-makers to have greater confidence in the data they use. These services extend beyond traditional financial reporting, covering a wide array of non-financial information.
Examples of assurance engagements include reviews of internal controls, examinations of sustainability reports, or assessments of performance measurement systems. In these engagements, the professional applies specific criteria to the subject matter, such as industry standards, regulatory guidelines, or predefined metrics. The independent professional’s evaluation provides a level of comfort regarding the information’s accuracy and adherence to the stated criteria.
Understanding Audit Services
Audit services, particularly financial statement audits, involve a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events. The purpose is to determine the degree of correspondence between these assertions and established criteria, communicating the findings to interested users.
The main objective of a financial statement audit is for an independent auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework. Common frameworks in the United States include Generally Accepted Accounting Principles (GAAP) or, for certain entities, International Financial Reporting Standards (IFRS). Auditors gather sufficient appropriate evidence and consider materiality to provide reasonable assurance, which is a high but not absolute level of confidence, that the financial statements are free from material misstatement.
The Relationship Between Assurance and Audit
The relationship between assurance and audit can be understood by recognizing that all audits are a type of assurance engagement, but not all assurance engagements are audits. An audit is a specific, high-level form of assurance that focuses on historical financial information.
Audits differ from other assurance services in several key aspects, starting with their scope. Audits concentrate on an entity’s historical financial statements, while other assurance engagements can cover a much broader range of subject matters, including non-financial information or future-oriented data. The level of assurance provided also varies, with audits typically offering “reasonable assurance,” a high degree of confidence, whereas other assurance engagements might provide “limited assurance,” a lower level of comfort, or no assurance at all, as in agreed-upon procedures.
The criteria used in audits are typically well-defined financial reporting frameworks such as GAAP or IFRS, ensuring consistency. In contrast, other assurance engagements may utilize a wider variety of criteria, including internal policies, industry benchmarks, or specific contractual terms. Reporting outcomes also differ; an audit culminates in a formal opinion on the fairness of financial statements, while other assurance engagements might result in a review report, a compilation report, or a factual findings report detailing procedures.