Assurance Services, Attestation Services and Non-Assurance Services

In this video, I discuss the difference between assurance and non assurance services.

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Assurance services, non assurance services, attestation, reviews.
An assurance service is an independent professional service that improves the quality of information for decision makers. Such services are valued because the assurance provider is independent and perceived as being unbiased with respect to the information examined. Individuals who are responsible for making business decisions seek assurance services to help improve the reliability and relevance of the information used as the basis for their decisions.
Attestation Services
One category of assurance services provided by CPAs is attestation services. An attestation service is a type of assurance service in which the CPA firm issues a report about a subject matter or assertion that is made by another party. Primary categories of attestation services include:

Audit of historical financial statements

Audit of internal control over financial reporting

Review of historical financial statements

Other attestation services that may be applied to a broad range of subject matter

Audit of Historical Financial Statements
In an audit of historical financial statements, management asserts that the financial statements are fairly stated in accordance with applicable U.S. or international accounting standards. An audit of these statements is a form of attestation service in which the auditor issues a written report expressing an opinion about whether the financial statements are fairly stated in accordance with the applicable accounting standards. These audits are the most common assurance service provided by CPA firms.

Audits are designed to provide reasonable assurance that the financial statements are free of material misstatements. Reasonable assurance is a high, but not absolute level of assurance. This level of assurance is usually sufficient to meet the information needs of financial statement users. Much of this book is about how auditors design tests to provide this level of assurance, considering the client’s business and industry and risks of material misstatements in the financial statements.

Publicly traded companies in the United States are required to have audits under the federal securities acts. Auditor reports can be found in all public companies’ annual financial reports. Most public companies’ audited financial statements can be accessed over the Internet from the Securities and Exchange Commission (SEC) EDGAR database or directly from each company’s Web site. Many privately held companies also have their annual financial statements audited to obtain financing from banks and other financial institutions. Government and not-for-profit entities often have audits to meet the requirements of lenders or funding sources.

Audit of Internal Control over Financial Reporting
For an audit of internal control over financial reporting, management asserts that internal controls have been developed and implemented following well established criteria. Section 404 of the Sarbanes–Oxley Act requires public companies to report management’s assessment of the effectiveness of internal control. The Act also requires auditors for larger public companies to attest to the effectiveness of internal control over financial reporting. This evaluation, which is integrated with the audit of the financial statements, increases user confidence about future financial reporting, because effective internal controls reduce the likelihood of future misstatements in the financial statements.

Review of Historical Financial Statements
For a review of historical financial statements, management asserts that the statements are fairly stated in accordance with accounting standards, the same as for audits. The CPA provides a lower level of assurance for reviews of financial statements compared to a high level for audits, therefore less evidence is needed. A review is often adequate to meet financial statement users’ needs. It can be provided by the CPA firm at a much lower fee than an audit because less evidence is needed. Many nonpublic companies use this attestation option to provide limited assurance on their financial statements without incurring the cost of an audit.