Audit and assurance services are essential for any organization to improve transparency, integrity, and the quality of decision-making. However, the areas they encompass and even the processes followed can vary greatly. Many times, audit and assurance services can even overlap with each other, making it confusing to understand their differences. To help you get a good grasp of what each area is, this article breaks them down in detail.
What is an Audit?
Audits are a common practice across all organizations, globally recognized. Often handled by the financial services team, this set of processes verifies the accuracy of financial statements. It helps meet compliance requirements while strengthening internal processes and overall boosting stakeholder confidence.
Definition and Purpose
An audit can be defined as a systematic way to check the financial statements and records of an organization to ensure their accuracy and adherence to established standards and frameworks. At its core, the purpose of an audit is to check whether the financial statements reflect the true state of an organization’s operations and financial standing.
These audits are also a way to assure lenders, shareholders, investors, and other stakeholders of the financial health and stability of an organization. In some cases, audits also reveal weaknesses in existing financial processes that may not be directly visible to management. However, these weaknesses can impact operations in the long run, and audit findings can identify them, so you can fix them as early as possible. Identifying and fixing these issues also helps reduce fraud and mismanagement.
Types of Audits
While the broad purpose of an audit remains the same, the way it is used, its purpose, and the audience can determine the type of audit required.
Financial Statement Audits
Financial statement audits are the most common type, and they verify if an organization’s income statements, balance sheets, cash flow statements, and other financial statements are accurate. These audits are used by investors and lenders while making financial decisions. Well-conducted and reliable audits by experienced and independent professional firms like Manay CPA are critical if you plan to go public in a few years. It can also make it easy to secure funding or merge with other businesses in the future.
Internal Audits
Internal audits, as the name suggests, are conducted within an organization. It is used to evaluate if the organization uses relevant controls and follows an efficient policy for recording and maintaining transactions. It is also used to identify weaknesses to improve operational efficiency and security. For example, an internal audit can highlight delays in vendor payments or can flag excessive manual processes in approvals, all of which can impact efficiency.
Compliance Audits
Compliance audits are used by regulators to check if an organization is following the rules and regulations of relevant frameworks like GAAP. It can also be more specialized to check if operations meet specific environmental requirements or tax regulations. These audits are more likely in regulated industries, like healthcare and banking. It helps to have audits for HIPAA and SOX to identify and fix problems, as any non-compliance can lead to millions of dollars in fines.
Who Conducts Audits?
Regardless of the type of audit, it must be carried out by Certified Public Accountants (CPAs) or independent auditors who are affiliated with the associated governing body. All auditors must carry out their assessment independently and without any conflict of interest. The auditors can also be the employees of organizations, though their role will be largely restricted to internal audits.
In general, selecting external and independent auditors is necessary because their lack of ties to an organization can reassure stakeholders of the credibility of audits. Also, audits conducted by trustworthy firms like Manay CPA are seen as unbiased and credible.
What are Assurance Services?
Assurance services are a broader range of evaluations that cover both financial and non-financial aspects. The goal is to create credibility for internal and external stakeholders. These services are particularly useful in today’s business environments where the onus is on organizations to demonstrate integrity, risk management, and operational excellence.
Assurance Definition
Assurance has a broad scope and coverage, as it encompasses financial and non-financial processes and operations. It is intended to assure all stakeholders about the integrity of an organization’s operations and its reliability and health. Businesses use assurance services to gain confidence and to establish their financial and operational credibility.
Unlike audits, assurance services are largely voluntary and undertaken by organizations to meet specific objectives. For example, a company may want to conduct an assurance service to prove that it is meeting the established Corporate Social Responsibility (CSR) goals. Along with providing an independent view of operations, these services also boost transparency.
Types of Assurance Services
Given the broad scope, assurance services can come in many types and formats.
Reviews
A review is a quick look into a specific operation or statement, with a focus on inquiry and analytical procedures. While it offers a moderate assurance to stakeholders, it does not apply to all situations. For growing companies, reviews are a cost-effective way when full audits are not required, but credibility is still needed.
Agreed-Upon Procedures
These procedures are highly flexible and geared towards a specific goal. In this assurance type, the scope of the procedure is defined by the management and the auditor together. Sometimes, they even enter into a written agreement to finalize the scope. The auditor then examines appropriately and reports the findings in an unbiased way. These procedures are commonly used when businesses have to go through due diligence for acquisitions or require the validation of specific contractual obligations.
Risk Assessments
Risk assessments are another type of assurance service that identifies and evaluates vulnerabilities in your operations. These risks can include financial, operational, security, and more. Based on the findings, organizations can take appropriate steps to improve controls and manage risks before they escalate. Many organizations are increasingly requesting these assessments as a part of their enterprise risk programs to help prepare for disruptions related to cybersecurity and geopolitical risks.
Who Provides Assurance Services?
Like audit, assurance services are also offered by CPAs and accounting professionals. While selecting a professional, make sure they have experience in your specific industry or in the type of assurance service you need. Manay CPA has extensive experience across all industries, and its expert CPAs can handle any type of assurance service for your organization.
Key Differences Between Audit and Assurance Services
Though audit and assurance services are connected, they have varying purposes and goals. Understanding these differences is essential to deciding what type of service you need.
Level of Assurance
When compared to the two, audits provide a higher level of confidence because they involve extensive testing, evaluation, and verification. Every transaction is scrutinized and checked against standards to ensure there are no gaps. Assurance, on the other hand, can be more limited based on the engagement type. As a result, assurance services provide lower levels of confidence than audits.
Scope and Focus
The scope and focus also vary between the two. Audits are narrow in both scope and focus, as they are primarily geared towards financial records and transactions only. Assurance services go beyond financial statements and encompass non-financial data, processes, and risk assessments as well. More importantly, you can customize assurance services to focus just on a specific aspect of operations or evaluation.
Regulatory Requirements
Audits are mandatory in certain environments, especially for those in regulated industries, public companies, and organizations that require external funding from investors. Audits are a way to build trust and confidence in the financial health of organizations. Assurance services, on the other hand, are largely voluntary. They are requested by businesses when they want to strengthen credibility or build trust among stakeholders. Depending on the purpose, the scope of assurance services can be customized.
Frequency and Timing
The timing and frequency of audits are largely fixed. They are mostly conducted annually. However, assurance services can be conducted at any time depending on the scope and purpose of the service.
For example, if there were a data breach in your organization, you may want to conduct an assurance service of all security controls to prove to your stakeholders that the issue has been fixed. In this sense, assurance services are flexible and can be conducted at any time. Some organizations tend to use assurance services to supplement their once-a-year formal audits.
Regardless of the reason, a key to successful assurance outcomes is to choose a flexible firm without compromising on processes or integrity. It also helps if its auditors have extensive experience across different scenarios and industries.
How Manay CPA Can Assist with Audit and Assurance Services?
Manay CPA is a full-service CPA firm that has experience handling audit and assurance services. Headquartered in Atlanta, Georgia, this company’s experienced accounting professionals work with businesses of all sizes and across industries.
Comprehensive Audit Services
Manay CPA offers comprehensive audit services to prove the accuracy of financial statements and check on compliance. It conducts independent audits and reviews of financial statements, validating the data contained therein to ensure the reliability of your statements. Additionally, its certified accounts can assess the key processes involved to promote credibility and transparency. These evaluations also help identify gaps and vulnerabilities that can be fixed before they impact operations.
Whether you need financial audits for regulatory purposes, internal audits to identify and fix gaps, or compliance audits to meet regulatory requirements, Manay CPA can handle it all for you.
Tailored Assurance Solutions
Besides audits, Manay CPA handles assurance services as well. Its experienced professionals work with you to better understand the goals of an assurance service and help finalize the scope before starting their evaluations. These processes are tailored to meet the specific needs of your organization based on your operations, geographic region, and goals, without compromising on the quality of the service and outcomes.
Manay CPA supports all kinds of assurance services, like reviews, agreed-upon procedures, and assessments, to meet your requirements and goals. With this approach, you get the best of both worlds: customization and detailed analysis.
Expert Guidance and Support
Along with audit and assurance services, Manay CPA’s experienced auditors leverage their knowledge to provide expert guidance and support. Given their combined experience of working across different companies and industries, they have a hands-on idea of the right approach and processes for any situation, and can bring it all for you.
In this sense, Manay CPA combines technical knowledge with practical business insights to provide actionable intelligence. They can even help you implement the guidance to reduce uncertainty and build confidence among stakeholders.
In Manay CPA, you have a trusted advisor who can help you navigate the financial and regulatory environments with confidence.
Schedule a Free Consultation
If you need a full-fledged audit of your financial statements or a more customized evaluation of certain areas through flexible assurance services, our team is here to help and guide you.
Schedule a free consultation with Manay CPA to move forward with sustainable business growth and expansion.
FAQs
Can a company undergo an audit without assurance services?
Yes, audit and assurance services are independent activities. An audit is a form of assurance service because it is elaborate and stringent. On the other hand, not all assurance services are audits, as the scope and purpose can be narrower. A company can choose to undergo an audit as a part of its compliance requirements or to verify its financial records and standing.
Are assurance services always voluntary?
In most cases, assurance services are voluntary. However, in certain industries or under specific contractual agreements, assurance services are mandated by both parties involved. Only during such times, assurance services become mandatory.
How do audits and assurance services impact financial reporting?
Both audits and assurance services improve financial reporting, as they reduce errors and improve transparency. In turn, this leads to greater confidence in the minds of stakeholders. Though audits are well-suited for financial reporting, assurance services can be used for both financial and non-financial reporting.
