Audit And Assurance: Understanding the Differences and Benefits

The concepts of audit and assurance are intertwined, but they are not the same. Audit and assurance are often confused with each other or interchanged. This write-up seeks to explain the key differences between the two.

Before we delve into the conundrum, let us first grasp the meaning of audit and assurance.

What is an audit?

Audit is a detailed examination of financial reports of an entity by an independent expert (practitioner) who is chartered and is certified to practise as an auditor.

The purpose of an audit is to form an opinion on whether the information presented in the financial report by the entity being audited, taken as a whole, represents the financial performance and position of the entity. In other words, audit ensures that the financial records of the entity are a true and fair reflection of the transactions of the company during the period.                                                                                      

Audit involves complex processes and techniques. When examining the financial report and the underlying records and documentation of an entity, the auditor is required to follow auditing standards, legal and other regulatory requirements.

A traditional audit provides a reasonable assurance to readers of the financial reports that the information is credible, reliable and free from material misstatements.

What is Assurance?

Assurance service is provided by professionals known as assurance practitioners, typically Chartered or Certified Accountants. Assurance services are provided with the goal of providing users with quality information or conclusions to enable them to make informed decisions about a subject matter.

According to the International Auditing and Assurance Standards Board (IAASB), an assurance engagement is an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.

There are five key elements in every assurance engagement:

1. A three-party relationship (the practitioner, responsible party and intended user)
2. An appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence to support the conclusion
5. A written assurance conclusion/ report.

Examples of an assurance engagement

1. Audit of a company’s financial statements
2. Review of environmental policies
3. Review of the effectiveness of internal controls and I.T systems 
4. Corporate governance structure review
5. Due diligence reporting
6. Review of financial statements
7. Review of grant claims.
8. Valuation of an entity’s debt or shares for debt holders or equity investors

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Benefits of Audit and Assurance

Audit and assurance services provide endless benefits to users. A few of the benefits are mentioned below:

1. Allow companies to comply with legal and regulatory requirements. 
2. Increase stakeholder confidence in the organization or subject matter
3. Help identify business and financial risks facing the organization.
4. Some assurance services provide avenues for financial savings 
5. Help discover issues that management/ shareholders were previously unaware of for appropriate action
6. Improve business processes for achievement of organisation’s goals
7. Help obtain financing from lenders
8. Assurance reports help in dispute resolution.

Key Differences between audit and assurance

1. Audit is a form of assurance service. Assurance is a concept under which audit falls. 
2. In the context of audit of financial statements, audit refers to the techniques and procedures used to obtain evidence. Assurance is what is obtained as a result of the audit procedures performed. Therefore, assurance can be described as the purpose of an audit.
3. Audit is limited to examination of financial reports and underlying records but assurance extends to other areas such as examination of organisation’s processes, regulatory compliance checks, review of an entity’s performance, review of systems and operations, valuation exercise for investors, expressing an opinion on internal control system or prospective financial information, etc.
4. Audit reports are for general purposes or multiple users. The use of assurance reports is restricted. Example, an assurance report can be restricted to only a prospective investor and a specific circumstance under which it can be used.
5. Audit engagements must always provide a reasonable level of assurance, whereas an assurance engagement can provide either a reasonable level of assurance or limited/ lower level of assurance depending on the type of assurance engagement

If you are looking for a reliable practitioner to meet your audit or assurance needs, kindly contact Maker Hybrand or the author on:

 

Cell: +233 (0) 249 425 113   

Tel: +233 (0) 302 972 249

E-mail: earthur@makerhybrand.com 

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