What Are Assurance Services?
Business owners spend most if not all of their time on front-of-mind duties such as managing operations, marketing, sales, personnel and many more. But one key aspect that can fall under the radar is the accuracy and reliability of the information your business produces.
That’s where assurance services come into play.
Assurance services, in their simplest form, involve an independent examination of a company’s financial information, internal processes, and/or controls by qualified professionals. The goal? Provide an objective assessment that reduces the risk of inaccurate or misleading information.
This might sound like a luxury that only large corporations can afford. However, assurance services are every bit as important for small and midsize businesses. They not only help safeguard your financial health, but also build trust with stakeholders such as investors, banks and clients.
In this article, we will explain what assurance services are, a few types and how they differ. We’ll also discuss why assurance services are vital for any business.
What Are Assurance Services?
Assurance services are performed by external professionals (typically Certified Public Accountants, or CPAs) who examine your business’s financial reports and operations. The purpose is to provide an independent assessment of whether your company’s financial information is accurate and whether your internal controls are functioning properly.
Assurance goes beyond basic financial audits—it encompasses a wide range of services designed to reduce information risk. This is the risk that the information being provided to decision-makers (such as investors or management) is unreliable or incorrect. Assurance services offer … well, reassurance that the information a business provides is accurate, trustworthy and follows regulatory standards.
Types of Assurance Services
There are several types of assurance services available, depending on the needs of your business.
1. Audit Services
When most people think of assurance, they think of audits. An audit is a comprehensive form of assurance service, where an independent CPA examines your financial statements and the internal controls you have in place to ensure that they comply with accounting standards and laws. Audits help provide a high level of assurance that your financial statements are free of material misstatement.
For small and midsize businesses, an audit can provide valuable insight into areas of financial risk and operational inefficiencies, while also increasing credibility with external parties like banks, investors and regulators.
2. Review Services
A review is less extensive than a full audit and provides only a limited degree of assurance.
During a review, the CPA will make inquiries and perform analytical procedures to assess the reliability of your financial information. However, a review doesn’t involve in-depth testing of transactions and balances like an audit does.
While a review offers a lower level of assurance, it is still valuable for businesses looking to provide stakeholders with some level of comfort about their financial statements. Reviews are ideal for small businesses that might not require the rigor of a full audit but still want a professional, independent review of their financial position.
3. Compliance Services
Compliance services ensure that your company is following all relevant laws, regulations and standards, whether they pertain to financial reporting, environmental practices, labor laws or industry-specific guidelines. That makes them an essential component of assurance, especially for businesses operating in regulated industries or those subject to governmental oversight.
In compliance services, an independent practitioner reviews and assesses your internal controls, processes and systems to ensure they align with applicable regulations. This can include evaluating adherence to tax laws, data privacy regulations, anti-money laundering (AML) rules or even specific industry standards (think healthcare or construction).
For small and midsize businesses, compliance services help avoid potential fines, penalties and legal issues that could arise from noncompliance. Beyond financial and legal risks, failing to comply with regulations can damage your company’s reputation and erode trust.
4. Attestation Services
We’ve previously said, “All attestation engagements are assurance engagements, but not all assurance engagements are attestation engagements. Kind of like all squares are rectangles, but not vice versa.”
An attestation, which is performed by a CPA, involves taking already-gathered data and other information, then using previously agreed-upon procedures to generate a report about an assertion that another party has made.
If that sounds like an audit, that’s because it is — or at least, it can be. Audits are one type of attestation service. However, attestations also can cover areas such as internal control over financial reporting, information technology, among other things.
5. Agreed-Upon Procedures (AUP)
Agreed-upon procedures (AUP) engagements are a special type of attestation service. In an AUP engagement, the business and CPA work together to define specific procedures that the CPA will perform to test certain aspects of the business. For example, you might want the CPA to review a particular account or process, such as cash handling procedures or the accuracy of accounts payable records. The CPA will then provide a report on the findings of the procedures performed, without giving an overall opinion.
AUP engagements can be tailored to specific concerns or risks within your business, offering flexibility in addressing particular areas of interest without the scope of a full audit.
Why Are Assurance Services Important?
Among the reasons to value assurance services:
- They can reduce financial risk. Inaccurate financial statements can lead to poor decision-making, whether it involves budgeting, investments or pricing strategies. Assurance services ensure that your financial data is correct, enabling you to make sound, data-driven decisions that align with your goals.
- They can build credibility with stakeholders. Whether you’re seeking a loan, bringing in investors, or working with clients, your company’s credibility is crucial. Independent assurance services provide a layer of credibility, demonstrating that an objective third party has reviewed and validated your business’s information. This can improve your standing with banks, investors and other partners.
- They can improve your internal controls. Beyond financial reporting, assurance services also evaluate your company’s internal controls. Strong internal controls are essential for preventing fraud, ensuring accurate financial records and maintaining operational efficiency. Assurance services can help you identify weaknesses in your internal controls, which you can then rectify, reducing the risk of errors and fraud within your business.
- They help you comply with regulations. Assurance services ensure that your business complies with regulations, from tax laws to industry-specific standards, by verifying the accuracy of your financial reporting and assessing whether your internal processes meet legal requirements. Compliance reduces the risk of penalties, fines or legal issues that could harm your company’s reputation or financial standing.
We Assure You … We’re a Go-To Source for Assurance
Whether you’re looking to build confidence in your own operations or you want to prove the credibility of your data to outside parties, such as investors, you can look to McManamon & Co., which provides numerous assurance engagements for small- and midsize businesses.
Want to know more? Call us at 440.892.8900 or contact us online.
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