January 26, 2022

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Meaning of Assurance in Auditing and examples

Meaning of Assurance in Auditing and examples
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Assurance in Auditing means to give users confidence about a company’s financial statement, internal control, and so on. This term encompasses all audit services. And law firms also provide assurance services in their ways. In this article, I will focus on assurance in terms of auditing.

Definition of Assurance in Auditing

Assurance in Auditing in auditing means an auditor giving an opinion on a piece of information provided by a company on behalf of its users (in most cases shareholders). It can be defined as an assurance or opinion that information has or lacks credibility.

Key Explanations

The piece of information can be the financial statements of the company. It might be its budget or forecast for a period of time. Also, it might be on its computer systems (information system audit) or the internal control of the company. Whatever it is, the fact is that users need to have confidence in the information provided by the company. So, they request an opinion from an external party.

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There are two levels of opinions provided by an assurance service.

  • Reasonable or
  • Limited assurance regarding the information.

Reasonable assurance means the auditor provides a positive opinion about the piece of information. For example, in a statutory audit, the auditor gives an opinion that the financial statements are true and fair. Reasonable doesn’t mean the information is 100% correct.

Limited assurance gives a negative opinion regarding the information. Here, the auditor is saying that the information is credible. However, the users will have to use their discretion to know this. For example, the auditor might say that nothing has come to their attention that causes us to believe that the financial statements do not give a true and fair view.

Most assurance services are done by a third party. This means that, an outsider’s view of what has been done internally. That is, an audit firm. So, this adds value and credibility to the information provided. More so, it helps stakeholders, mostly shareholders to trust the information provided and make informed economic decisions.

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Examples of Assurance in Auditing

Examples of assurance services in Auditing includes

  • Statutory audit
  • Review on earnings forecast
  • Review of cash flow forecast
  • Reviewing internal control system and
  • Reviewing accounting information system of an organization

Conclusion

To wrap it up, the ICAN study pack on Auditing and Assurance states that assurance means confidence. Therefore, it gives confidence to the users of the information that it can be relied on. This confidence is based on the opinion provided by the third party.

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