Most people use the terms audit and assurance interchangeably. While they can refer to similar services, they are also not the same. There is a fundamental difference between both. However, some other minor variances between the two also exist. Before discussing those differences, it is crucial to understand what each means.
What does Audit mean?
The term audit refers to a process where auditors examine a company’s financial information. This process involves analyzing various documents for accuracy. Its primary purpose is to reach unbiased conclusions related to the financial information provided. However, it only looks at how accurate the evidence is. On top of that, it also establishes whether those figures reflect the client’s true state.
Auditing is a mandatory financial practice in many regions. This process applies to many entities, including individuals, companies, organizations, etc. For some of these entities, this process also comes in different types. For example, companies can have internal and external audits. While it is usually mandatory, some entities may also perform this process voluntarily.
What is Assurance?
Assurance also involves a similar process as audits. However, it focuses on the accuracy of an audit rather than financial information. Assurance helps ensure the work done by auditors was accurate and reached proper conclusions. Likewise, this process occurs once companies have completed an audit. The term assurance can also apply to activities in which auditors assure the client in those areas.
Assurance engagements also involve similar activities as auditing. It requires auditors to determine the accuracy of financial reports and information. However, it has a different purpose and lesser liability to the auditors. Assurance also applies to processes and operations besides financial information. Unlike audits, these engagements require less work and assurance levels.
Audit vs Assurance: What are the differences?
The differences between audit and assurance go beyond their fundamental processes. Apart from the definitions above, they also differ in the following areas.
Objective
The primary objective of audits is to evaluate the accuracy of financial information and reports. It also involves assessing if that information presents the client’s true state. On the other hand, the objective of assurance activities may vary. Usually, they require assuring stakeholders about different areas.
Standards
Audits require a higher standard due to how impactful they are. Auditors follow auditing standards in their work during these engagements. On top of that, other regulatory bodies may also dictate the process. Assurance, on the other hand, is more lenient in those areas. They do not require the same level of conforming to standards as audits.
Liability
The liability that an auditor undertakes during an audit is significantly higher. As stated above, audits are more impactful and regulated by various bodies. If auditors do not follow the standards provided or fail to perform their work, they face substantial liabilities. Assurance engagements may also involve these liabilities. However, they are significantly lower than audits.
Work
Due to the higher requirements, audits require more work from auditors than assurance. On top of that, auditors must dedicate more resources to audits. Usually, it is crucial to cover the liabilities and assure the quality of work. Assurance, though, does not require the same level of work.
Conclusions
Auditors form conclusions during audits by considering all financial information available to them. Those conclusions are stricter and require higher scrutiny. On top of that, audits require a positive conclusion. On the other hand, assurance only considers specific financial data. Auditors provide a negative conclusion in this case.
Conclusion
Audit and assurance are terms that most people use interchangeably. Audits include assessing financial information to reach conclusions about its accuracy and reliability. On the other hand, assurance looks at the auditors’ work and other areas. Apart from this, audit and assurance also differ in other areas. These include their objective, standards, liability work, and conclusions.
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