Assurance services refer to independent professional services offered by CPAs and others to improve information quality or its context for decision makers ("Assurance services, 2006). Traditional auditing services have focused on financial and governance issues and not on broader functional business units within organizations. Assurance services encompass a broad approach to assessing risk associated with and, potentially, touching all functional areas within an organization. Assurance service offerings have grown proportionally with advances in information technology. Assurance services focus on issues related to information security management, privacy and data governance issues, and nearly every other aspect of digital data management. Core competencies required of CPAs will need to change in order for these professionals to meet the growing demand and expertise in assurance services. CPA professionals need to be well versed in how information technology is affecting core business as well as the accounting profession. CPAs will also need to increase their overall customer service skills and business knowledge in order to fully meet their client's needs for assurance. Accounting firms will need to invest in training for their professional services personnel as CPAs will be required to have more in-depth knowledge of specific industries. Assurance services afford ample opportunity for accounting firms to expand into non-financial auditing markets. The competition to provide future assurance services will be fierce and will require a much broader set of competencies than have been traditionally relied upon by CPAs.
Keywords Accounting Technology; AICPA; Assurance Services; Attestation Services; Audit; Auditing Services; Big Four Accounting Firms; Business Risk Assessment; Certified Public Accountant Competencies; Internal Audit and Assurance Strategy (IAAS); Risk-base Audit; Strategic Audit; Trust Services
Accounting: Assurance Services
Assurance services are defined by the American Institute of Certified Public Accountants (AICPA) as independent professional services that enhance the quality or context of information for decision makers. The aim of assurance services is to reduce the risks that information provided is incorrect. Assurance services are founded on the CPA tradition of valuing the independent certification of data veracity by an outside party. Assurance is not just an assessment of financial data, but addresses the risks associated with a company’s non-financial information and processes as well. Auditing services and attestation services provided by CPAs could be confused with assurance services, but there are some important distinctions.
Auditing services are well known and have been provided by CPAs for many years. In the context of CPA services, an audit can be defined as "an independent assessment of the fairness by which a company's financial statements are presented by its management. It is performed by competent, independent and objective persons, known as auditors or accountants, who then issue a report on the results of the audit. When a CPA provides attestation, he or she expresses a conclusion about the reliability of a written statement that is the responsibility of someone else" (Wordweb, 2007). Attestation and auditing have typically been defined around financial services, while assurance services may cover all functional business areas in an organization. Given the definitions of audit and attestation, it is easy to see how assurance services are a natural extension of the traditional CPA auditing services.
The following list describes some of the types of assurance services available to companies. These represent services that are non-financial in nature ("Assurance services," 2006).
- Customer satisfaction
- Information Technology Assurance Services (ITAS)
- Information systems security
- Business risk assessment
- Internal audit outsourcing
- Accounts receivable review
Timeline: Auditing to Assurance Services
CPAs have been auditing financial statements since the early part of the 20th century. The examination of a company's financial records insures that financial information is presented in conformance with federal rules and regulations such as generally accepted accounting principals (GAAP). In the 1970s, companies were looking for lower level/lower cost options to typical CPA financial statement audits. CPAs began to provide "reviews" of financial statements which were based on inquiry and analysis of data rather than the physical inspection of financial data. The resulting reports provided "limited assurance" of a company's financial statements. Another service provided by a CPA was called a "compilation" in which the CPA simply helped a company put its financial data into a statement form ("Assurance services," 2006). This report provided no assurance about the integrity of a company's financial data because no testing of the data had been done.
In the 1980s, the role of the CPA expanded to include what we now know as assurance services. CPAs began to report on non-financial subjects, and included internal controls, contracts, and compliance. The resulting reports were termed "attestation engagements."
"In an attestation engagement, the CPA applies the tools used in audits and reviews to provide assurance on whether the subject matter of the engagement (such as internal control or management's discussion and analysis of operations) complies with applicable criteria for measurement and disclosure. The result is a report much like an audit (reasonable assurance) or review (limited assurance) of financial statements" ("Assurance services," 2006).
Throughout the 1990s, revenues generated from traditional auditing and accounting services became flat. Accounting firms realized that financial statement auditing was a mature product and that the market expansion lay in offering expended services. Auditing of financial statements provided objectivity and integrity to users, clients and capital markets and the value that CPAs provided could be transferred to other services. In 1995, the American Institute of CPAs (IACPA) special committee on assurance services began a study of the audit-assurance function. The report of the AICPA was focused on looking forward beyond traditional CPA services to identify new opportunities for the accounting professional (Pallais, 1997). It was really the explosion of digital information and the knowledge economy that afforded new opportunities for assurance services. The risks associated with the easy sharing and movement of digital data is well documented in security and data privacy breaches. While risks to companies rose, so too did opportunities for companies to implement strategic solutions with increased access to metrics and data. The need for assurance services associated with information technology advances exploded as the digital economy developed. Issues specific to technology and the accounting field will be explored in greater detail later in this essay.
Avenues of Assurance Services
Assurance services were viewed as being aligned with audit-attestation but focused on a more comprehensive approach to reviewing specific subject matter within a given organizational context. The focus of assurance services was on improving information rather than advice or installing systems (Pallais, 1997). Assurance services encompass the following parameters:
- Financial or non-financial subjects.
- Direct or indirect information.
- Internal or external processes/information.
- Improved reliability and context.
The AICPA committee's study released in 1997 identified the following "six broad areas of potential "hot" assurance services for the accounting profession ("Special committee…," 1997):
- Electronic commerce assurance.
- Health care performance measurement.
- Entity performance measurement.
- Information systems quality.
- Comprehensive risk assessments.
- Elder care assurance.
A seventh area may be added (Schneider, 2013; Perego & Kolk, 2012).
- Sustainability and greenhouse gas emissions.
Stakeholders and users of assurance services represent a wider audience than users of typical CPA auditing reports. Financial statements provide valuable information for senior mangers and Chief Financial Officers, but stakeholders for assurance services may come from any area of an organization. Because assurance services are subject-specific, and placed in a specific business context, stakeholders may include: (subject expert) Decision makers, boards of directors, creditors, or customers. Managers, accustomed to making decisions with incomplete data, benefit from assurance services which can lead to better decisions and decreased risk. Assurance services aim to evaluate the veracity of past business cycle data and benefit stakeholders across an organization (“Assurance services,” 2006).
Assurance services can be provided by a number of individuals, depending upon expertise within an industry. Generally, assurance services may be delivered by accountants, attorneys, or management or technical consultants (Elifisen, Wallage, Knechel, & Van Praag, 2004). This article focuses on the role of the CPA in providing assurance services, along with the new competencies that will be needed by CPAs in the future.
Role of the CPA in Providing Assurance Services
This essay has already reviewed some of the changes that occurred in the 1990s in the accounting industry. The market for financial accounting has become increasingly saturated and auditing is viewed as a compliance requirement rather than a service. Advances in information technology have impacted the field of accounting in a number of ways that will be examined later in this article. Other factors that are driving the need for new accounting services...
(The entire section is 4447 words.)