Assurance services are a type of independent professional service typically provided by certified or chartered accountants such as certified public accountants (CPAs). These services include a review of any financial document or transaction, such as a loan, contract, or financial website. This review certifies the correctness and validity of the item being reviewed, ensuring its credibility.
Key Takeaways
- Assurance services are a specialized independent professional service usually offered by certified or chartered accountants such as CPAs.
- They improve the quality or context of information for decision-makers by providing independent verification.
- Reduction in information risk through assurance services leads to better decision making.
- Businesses utilize assurance services to boost transparency, relevance, and importance of information disclosed to the market and their investors.
- Assurance services are applicable to areas such as risk assessments, business performance, information systems reliability, e-commerce, and healthcare performance.
Understanding Assurance Services
Assurance services are designed to enhance the quality of information for individuals making decisions. By providing independent assurance, these services help ensure the reliance of the information, thereby mitigating risks—particularly information risk.
Providers of these services assist clients by proactively managing and monitoring the risks presented by third-party relationships. Businesses leverage assurance services to increase the transparency, relevance, and value of the information disclosed to the market and their investors, which can foster sustainable growth and offer a competitive edge.
Professionals seeking guidance on engaging in assurance services can refer to the International Standard on Assurance Engagements (ISAE) 3000 as well as The Assurance Sourcebook published by the Institute of Chartered Accountants in England and Wales (ICAEW). These resources offer both technical guidance and practical advice for firms navigating various assurance services.
In recent years, regulations like the Sarbanes-Oxley Act of 2002 have heightened the demand for these services, aiming to protect investors from false financial information.
Types of Assurance Services
Assurance services come in various forms and provide firms with crucial information to simplify decision making. For instance, a client may request a CPA to meticulously review the calculations on their mortgage website to ensure all mathematical operations are accurate. Below are some common types of assurance services:
Risk Assessment
Entities today face greater risks and abrupt fluctuations. Managers and investors worry about whether these entities have recognized the full extent of these risks and enacted measures to mitigate them. This service guarantees a comprehensive assessment of an entity’s business risks and evaluates the effectiveness of its risk management systems.
Business Performance Measurement
Investors and managers require broader and more detailed information than mere financial statements; they need a “balanced scorecard.” This service evaluates whether an entity’s performance measurement system incorporates relevant and reliable metrics for assessing its goal achievement and competitive stance.
Information Systems Reliability
With the increased dependency on real-time information, the focus should be on inherently reliable systems rather than post-fact data corrections. This service evaluates whether an entity’s internal information systems (both financial and non-financial) are providing reliable data for operational and financial decisions.
Electronic Commerce
The expansion of electronic commerce has faced obstacles due to a lack of trust in its systems. This service reviews the integrity, security, privacy, and reliability of the systems and tools used in electronic commerce.
Healthcare Performance Measurement
A major shift has occurred in the $1 trillion healthcare industry from a system that rewards volume (fee-for-service) to one that rewards value (managed care). Consequently, there’s rising concern for the quality and availability of healthcare services. This service provides assurance on the effectiveness and efficiency of healthcare services provided by HMOs, hospitals, doctors, and other healthcare practitioners.
Related Terms: Information Risk, Performance Measurement, E-commerce, Healthcare Assessment, Risk Assessment.
