An audit is a process of checking accounting and other information given in the financial statement. For instance, the closing balance of property, plant and equipment amount to $25,000 on the balance sheet. The auditor checks the accuracy of this balance by tracing the opening balance, vouching for the addition, deletion, recalculating deprecation etc. This process of checking the accuracy of the balance is called an audit.
On the other hand, assurance engagement is when auditors are requested to analyze the business operations, processes, and relevant details related to business activities. The assurance engagement is carried on the specific request of the client. For instance, you need to purchase the business and want some independent firm of accountants to assess business processes and accounting details, this activity is called assurance engagement.
It’s important to note that in an audit, the auditor is more focused on the financial statement and accounting stuff. However, the scope of an assurance engagement is wider and auditor is required to understand, analyze, and report on the related business processes (key information).
In assurance engagement, the auditors try to gain some important highlights that might help in decision-making if you should buy a business or not. For instance, after performing assurance, auditors report that the targeted business (the business you are willing to buy) is supported by the parent company in terms of financing, sales facility, credit worthiness and much more. So, when you acquire the business, the parent of the targeted business will withdraw all of its facilities. Hence, it may be difficult for you to sustain present operational and financial performance of the targeted business. In this situation, assurance engagement might help you to say no to the business purchase.
Let’s understand the difference in tabular form to be more clear and concise on it.
|An audit is a process of assessing the numbers and accounting information given in the financial statement. So, it’s more focused on the accounting stuff.||Assurance is the process of understanding, analyzing, and reporting on business efficiency. It’s focused on the business and accounting stuff as well.|
|It’s a regular activity required by the law. For instance, an annual audit is conducted each year.||Assurance is done on some special occasions. For instance, due diligence is a type of assurance that is normally performed when you intend to purchase a business.|
|An audit is an extensive exercise. It means the execution of the audit requires more time and consumes more energy.||Assurance is comparatively less extensive. It’s because assurance intends to report on specific items.|
|It aims to ensure there is no material misstatement in the financial statement prepared by the business.||It aims to enhance user confidence in the business feasibility. So, they can make informed decisions.|
|It’s a normal exercise and performed after regular time.||It’s performed on some special request.|
An audit is about the assessment of the financial statement. In other words, the audit intends to ensure there is no material misstatement in the financial statement. It’s designed to enhance the confidence of financial statement users and is conducted in line with accounting/auditing standards. On the other hand, assurance is about understanding and analyzing the business to help in some specific decision-making.