Chapter 1
Assurance Services
Need for Assurance
Why do you need assurance?
•Potential bias in providing information.
•Remoteness between a user and the organization
or trading partner.
•Complexity of the transactions, information or
processing systems.
Potential Bias in Providing
Information
•Sellers
•Management
•Inside information
•Compensation of management
•Stock options held by management
Remoteness of Users
•Global society
•Lack of personal interaction
•Can’t physically inspect goods
•Can’t interview management
•Can’t inspect facility
•Can’t review books and records
Complexity
•Economic transactions are more complex
•Information systems are more complex
•Processing of transactions is more complex
•Users of financial statements must rely on CPA’s
Need for Assurance Regarding
Information and Operations
What is assurance?
Independent professional services that improve the
quality of information, or its context, for decision makers.
Assurance is a broad concept.
Assurance services depict:
•A wider spectrum of services.
•A more diverse group of users.
•Greater potential users.
Attestation Services
Subset of a broader spectrum of assurance
services.
Attest services always involve evaluation of
an assertion by one party to a third party.
Assurance services do not need to involve a
report.
Evolving Assurance Services
•Assisting organizations in identifying, measuring, assessing, and
managing risks.
•Providing assurance on information systems integrity.
•Identifying and communicating improved methods of measuring
and communicating organizational performance.
•Improving the quality of financial services provided to the elderly
population. (ElderCare Services)
•Developing criteria and communicating assurance regarding ebusiness.
•Identifying better measurements of quality of health care.
Internal Audit Assurance
Services
•The effectiveness of a company’s process for identifying
risk.
•The quality of an organization’s governance processes.
•The effectiveness and efficiency of an organization’s control
processes.
Characteristics of
Assurance Services
•Information or a process on which the assurance service
is provided.
•A user or a group of users who derive value from the
assurance services provided.
•An assurance service provider.
Value of Assurance
The assurance function gives investors and
creditors confidence in the accuracy of data.
The value of assurance, then, is in the
confidence it generates in users of the
information.
Attributes Needed to
Perform Assurance
•Subject matter knowledge
•Independence from parties requesting the
assurance
•Established criteria
Levels of Assurance
Provided
Three Levels:
1
Positive assurance (such as an audit opinion)
2
Limited or negative assurance (such as on
interim financial statements)
3
No assurance (such as a compilation
of financial statements)
The Special Role of
Financial Statement Audits
Reliability of financial information.
CPA’s provide independent evaluations and
reports.
CPA career is one of the most important and
most highly regarded public functions.
New challenges.
Auditing Defined
Auditing is both more and less than public
accounting.!!
Auditing is a systematic process of
objectively obtaining and evaluating
evidence regarding assertions about
economic actions and events to ascertain
the degree of correspondence between
those assertions and established criteria
and communicating the results to
interested users.
Requirements to Enter the
Public Accounting Profession
 Accounting and Auditing Expertise
Knowledge of Business and its Risks
Understanding Accounting System
Complexity
The Providers of Assurance
Services
The Public Accounting Profession
The Internal Audit Profession
The Governmental Audit Profession
The Internal Audit
Profession
Definition
An independent, objective assurance and
consulting activity designed to add value and
improve an organization’s operations. It helps
an organization accomplish its objectives by
bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk
management, control, and governance
processes.
Major Types of Internal
Audits
Risk
Management
and Control
Evaluations
Operational
Audits
Compliance
Audits
Governmental Auditing
Profession
Employed by various federal, state, and local
agencies.
GAO places a great deal of emphasis on
performance audits.
IRS
Defense Contract Audit Agency
Other Professional and
Regulatory Organizations
American Institute of Certified Public
Accountants (AICPA)
State Boards of Accountancy
Securities and Exchange Commission (SEC)
The Institute of Internal Auditors (IIA)
The U.S. General Accounting Office (GAO)
The Court System