Assurance
Assurance
means self-belief. In an assurance appointment, an assurance firm is engaged by
one party to offer an opinion on a quantity of data that has been prepared by
another party.
The opinion
is an expression of assurance about the knowledge that has been reviewed.
It gives
declaration to the revelry that hired the reassurance rigid that the knowledge
is often relied on.
Assurance
is often provided by the audit:
This may be an external audit, internal audit, or a mixture of the 2 reviews.
If we
clarify it with its backdrop and appropriate information.
Since the
economic Revolution in the 18th century, businessmen started forming Joint Stock
Companies to try to do business.
In many situations,
people that managed the business (called management and directors) were
different from those that owned the business (called shareholders).
Administration
and Directors had the role of stewardship (i.e. they appear after the assets of the
corporate and manage them on behalf of shareholders).
Or agent
(i.e. they take action in agreement with directions of shareholders).
To judge the
performance of management and directors, shareholders asked them to organize
statements about financial performance.
And the financial
position of the company (these statements are now called ‘financial statements’)
and to supply them these statements.
Soon after,
it had been recognized that financial statements prepared by managers/directors
presented the “best-view” of business.
Instead of
“true-and-fair-view” thanks to some Incentive (e.g. bonus) or Pressure (e.g.
fear of removal) faced by management.
Accordingly reliability of the monetary statement was questioned.
To enhance
the authority/self-belief/declaration on these financial statements.
A skilled
personality (called declaration supplier or auditor) was hired by shareholders
to validate monetary statements. This person:
1. Is
independent of both managers/directors and shareholders.
2. Gives his
report/opinion whether financial statements give true and fair view altogether
material respects.
The role of
auditors was recognized in a good way. The audit is performed moreover because.
3. they're
required by law (called statutory audits e.g. all companies in Pakistan are
required by law to urge their annual financial statements audited before
they're given to shareholders)
4. they're
not required by law but are voluntarily performed due to the value-added benefits of audits.
(called
non-statutory auditors e.g. sole-proprietorships, partnerships, and NGOs, etc.
undergoing an audit)