What is meant by Accountants Assurance Services?

by | Jul 1, 2020 | Accounting Firm Services

Some Key Financial Assurance Services for all size and types of companies and organisations – but first:

What is Assurance – and what does assurance mean in the context of ‘Financial Assurance Services’?

Assurance is defined, in various ways, as a declaration of certainty, or of complete confidence.

Financial Assurances are variously defined, depending on what they are – and they can be many.

When it comes to assurances services provided by an assurance or accounting firm, assurance refers to procedures that lead to an independent declaration of the truth of financial statements of a business, to shareholders, third-parties, the public and entities that have vested or regulatory interest in a business, confidence in that business.

How comprehensive Assurance is delivered for your business:

Each of following Assurance services are offered independently. However, in practicality, they are interwoven. They are all parts of a single (and crucial) input into a business, with a single objective: namely, to provide assurance to regulatory bodies, investors, shareholders and the public that your businesses financial statements are accurate.

However, these Assurance services also have a valuable role in doing business. Not just in doing business for profit – but doing it successfully, competitively, with accurate financials, and with maximum protection against risk – to maximise growth and long-term profit:

  • Statutory Audits
  • Independent Reviews
  • Due Diligence
  • Internal Controls
  • Risk Management

Statutory Audits fall under Accountants Assurance Services

Statutory Audits provide assurance of the truth of the financial position of a business or organisation. Legally mandated assurance procedures to provide assurance to third-parties, shareholders, government and other regulatory bodies.

Statutory Audits are independent audits of a businesses’ financial statements, required by law. Assurance through statutory audits comes through the independent determination that a business’s financial position is, in fact, what it says it is. This can be concluded through audit all the various financial records generated by a business or organisation.

Annual Statutory Audits:
The law requiring certain private companies to submit their annual financial statements is detailed within the regulation 28 of the Companies Act, 2008.

Large businesses (PIS score of 350) and corporations as well as all public companies, and government departments and organisations. are required to provide assurance by proving the accuracy their financials and the truth of their financial position.

Assurance is provided through determining the accuracy of the stated representation of the financial health of the business. The audit process will also establish fairness in operations (insofar as this reflects on a financial statement) statutory compliance in the applicable areas of operation.

Areas of statutory non-compliance (e.g. occupational health and safety infractions, labour-law infractions, flouting of environmental laws and regulations, etc.) can severely hamper the long-term operations, overall legality, growth and future of a company. It can make an organisation open to costly penalties and litigation, shares becoming worthless, bankruptcy and closure.

The bottom-line figure presented on the financial statement may be correct, as a balance figure. But if non-compliance has contributed to the profit shown and influenced the stated financial health of the company in a financial year, there can be no assurance provided that the company will continue to be viable, make a profit, or grow. Negative assurance might be that the company will get sued, shut down or subject to penalties that will hit profits and the value of shares.

Not sure how your business will fare, or what it will end up costing you when you are required to submit your business’s financials for statutory audit or independent review (which provides the lower level of assurance required of businesses with a PIS score of less than 350)? You can contract an independent review ahead of time to provide you assurance.

Independent Reviews fall under Accountant Assurance Services

Independent Reviews can be mandated assurance procedures for companies with a PIS score less than 350, or a financial assurance service you can invest in now, for the financial health of your business.

All businesses are accountable to the public – to varying degrees. These degrees are measured by a Public Interest Score. This score in turn determines your business’s obligations to prove financial health, compliance and above-board financial operations.

Independent reviews offered as an assurance service will also pick up errors in financial processes and calculations that may be impacting, unseen, on your bottom-line – and which will add to the costs of PIS determined independent reviews or statutory audits.

They’ll also pick up fraudulent accounting practices, or simply incorrect accounting practices that may be compromising your business’s financial health and future, without you even knowing about it.

Due Diligence falls under Accountant Assurance Services

‘Do your due diligence’ – a phrase we are all familiar with and a core financial assurance service and requirement: In fact – due diligence assurance is, again , often an obligation for the finalisation of an investment, shares or full sale agreement to proceed to purchase deed.

Assurance for seller and buyer / investor and business owner:

A very specific application for assurance, with a very specific purpose, and target for the assurance, is ‘Due Diligence’. Due diligence assurance procedures are undertaken by independent assurance service providers only. They cannot be done in-house. Due diligence reports are generated for potential investors, and are intended to assure those investors, as far as possible, that, should they decide to invest in a company, their investment would be sound and likely profitable. Although due diligence does not fall under statute, the assurance provided is often required to underpin the final stages of a purchase agreement – before transfer of purchasing funds.

Assurance provided an investor through an independent due diligence process and report will also provide the business with a level of legal assurance – in the event an investor claims they were misled prior to investing/deed of sale.

Due diligence assurance therefore provides assurance to both: 

  • The buyer / investor – the assurance is that they have a clear understanding of what they are investing in, what they will (or may) get out of the investment and what the risks are
  • The seller / business – the assurance is that there can be no future claim of misrepresentation on their behalf to the investor.

Of course, the bigger the business, the more complex its operations, the more risks it faces and the more global economies and statutes it is concerned with (and therefore needs to provide assurance on), the more complex the process of providing assurance through due diligence.

Most importantly, while due diligence investigations can (and do) go into all aspects of a businesses’ operations, all these aspects inform financial due diligence. This makes financial due diligence both starting and end points on a large, multi-focus, due diligence investigation; however, it also means that straightforward financial due diligence for smaller operations (which is usually the case when an organisation needs investment to grow) can form a foundation for growth with full compliance in all areas of operations and full systems in place for maximum transparency and risk protection and to maximise growth through opportunity.

Thus, through due financial diligence processes, a business – it’s investors and shareholders – it’s assured of moving forward with the accelerated growth that investment provides from the best possible starting block. 

Financial Due Diligence puts a figure on a company’s true worth through:

  • assurance of the accuracy of its financial statements,
  • assurance of the financial processes and third-party relationships that underpin and generate them, and
  • assurance of sound and accurate projection. It is informed by a minimum of 3 – 5 years reviewed and or audited financials (if available) as well as market forces and the current and future influence of various stakeholder entities.

One of the most important value-adds for a company’s financial health – current and projected – are its internal controls. Audits, reviews and due diligence assurance services can only provide the highest level of assurance if a company’s internal controls are watertight, i.e., they protect the company, its shareholders, owners and investors to the maximum level.

Internal Controls fall under Accountant Assurance Services

Internal Controls provide assurance that protects a company, minimising risk and thus maximising opportunities for growth:

If in the process of the instituting the above assurance procedures, it’s found that a company’s internal controls are inadequate, something must be done about that. Internal controls assurance, therefore, consists of:

assurance through establishing that a company’s internal controls protect the company from all forms of internal and external risk, and
assurance through establishing new and/or improving internal controls systems in a company.

In the case of internal controls: Assurance is first and foremost provided the business itself – its owners and other shareholders. The assurance extends from there – outward, upward and downward. The assurances required through internal controls assurance services -rom evaluation to establishment, to maintenance and management, depend on:

  •  the size of the business 
  • the industry it belongs to
  • it’s sphere of market influence through third-party relationships and business associations, and
  • the potential impact of risk on the market and or world should the business fall prey to risks such as cyber- attack, mismanagement (wilful or not), fraud, or shares collapse due to, for example, lack of environmental statute compliance (or anything else that could see it face heavy penalties or get shit down altogether)

The above factors influence the individual assurance components, the overall level of assurance, to whom (e.g. shareholders) and what (e.g. government, tax authorities) assurance must be provided, and the assurance procedures that must be followed – what, how much, and how frequent.

But the above is ‘all theory’. Most business owners looking for internal controls related assurance services are not Multi-National corporations, environmental impact or tens of thousands of employees monsters and corporations that could bring about stock market crashes if they are naughty, negligent or stupid. They already have internal controls assurance services on retainer, and have had, for a long time. Probably several assurance firms and beneath them – and army of independent accountants providing financial assurance services that are both part of, and include, internal controls.

What about internal controls assurance for your average SMME (Small to Medium-sized Enterprises)?

The assurance provided by internal controls assurance services can pertain to various threats and risks, but the biggest ones is most likely: book-keeping fraud and cyber-attack. One is external and the other is external. The latter s (not-so arguably) the biggest threat to a business – from the start-up company right on through to multinational, multi-operational, franchise, market controlling corporate level.

This is placing and more emphasis on the magnitude, importance and diversification of risk assurance – risk assessment and management assurance:

(Note: In South Africa – the regulatory parameters – including the need for an audit committee – for internal controls are defined by the King Report on Governance for South Africa 2009 – issued by The King Committee on Governance. )

Risk Management falls under Accountant Assurance Services

Risk Management – providing assurance for protection and capacity to challenge existing, evolving and increasingly complex risks faced by all business – from start-up to established – SMME to multinational Corporations.

There are many aspects to risk management and the associated assurance that is needed. The one common factor is that risk assurance is first and foremost required by the business itself. As already mentioned, internal controls assurance services provide the required assurance that systems and controls are in place to protect a business against threats – from both with and from outside an organisation.

Therefore – the very specific aspect of assurance provided by risk management must, and does, go beyond. It goes from assurance of protection to assurance of being able to take advantage of opportunities for growth in operations – what we call Enterprise Risk Management.

In brief: An overview of the assurance tenets of enterprise risk management:

  • The risk – and therefore the assurance value – is technology-based – and as technology becomes more complex, so does an increasingly multi-faceted risk .
  • Financial and operational threats are in the form of cyber-attack, data security compromise and data theft and financial and related operational and security technologies and systems going down or becoming outdated. (Dare we suggest that SARS could have done with some timely Enterprise Risk Management – with an exceptional level of Assurance needed for the entire country at this point).
  • Other threats include the technological advancement and competition from third party stakeholders in your business, and competition to your business. Risk becomes a case of not keeping up with the Joneses, or not getting ahead of them.
  • Assurance therefore requires assurance processes that progress from:
    1. assessment of current and future risks, and
    2. immediate mitigation of risk for short-term assurance, to
    3. continuing, evolving risk management and opportunity-taking processes for long-term assurance and growth
    4. compliance is a key driver of growth in evolving operational landscapes and with evolving technologies.

Full enterprise risk management ties in with the basics of financial risk management. Financial risk management services are provided with the co-option and contractual input of specialists and industry experts – from IT systems to staff management technologies.

Some final points on Assurance Services:

Financial Assurance Services are parts that make up the ‘sum that is greater than it’s parts’:

  • Assurance provides peace of mind and promotes business growth and profitability
  • Assurance is also about prevention – when prevention is better, and more cost-effective, than any cure.
  • Assurance is essential. Even when not legally required, it covers all the ‘what if’s’ – the ones you’ve thought of, and the ones you don’t even know you should think of. 
  • Assurance is the firebreak around your business and the trip-switch on your electrical circuit. It’s the janitor who quietly closes the dripping taps when everyone has gone home, and a cctv system to guard the integrity and legal compliance of your business.
  • Assurance will protect your business (and all interested parties) from common, yet often unforeseen, ‘thieves in the night’ that can too easily compromise or take away what you’ve worked so hard to build – and they have invested in.

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.