“Without accountancy businesses would find it hard to function”, Michael Izza. What you feel he means by the above quote?
Accounting is the language of business, without it, business functionality would be difficult to undertake. If we break it down, accountancy is needed in the following ways:
1. Financial Accounting: this comprises of information that companies avail to the general public. As a result of these statements being published, companies can gain potential investors. It also hold firms accountable for their operations and encouraged constant revaluation of systems and development in efficiency.
2. Management Accounting: this deals with internal information e.g. cost of goods sold, profit targets, variance analysis etc. This holds management accountable for decisions they make. As a result, they review, plan and coordinate amongst themselves to ensure smooth functionality.
3. Accountability: Businesses need to be held accountable for the actins they make. Otherwise there would be elements of greed, theft, dishonesty and fraud evident in the framework. Accountancy therefore acts as regulator to stop such miss happenings and in a way ensure the financial market runs at equilibrium.
In the article the quote appeared, Michael Izza also states that the Joint Stock Companies Act introduced Statutory Audit.1 From here we begin to highlight the importance of a statutory audit to business functionality. A statutory audit entails an auditor expressing his opinion whether the financial statements are prepared in all material aspects, in accordance with an applicable financial reporting framework and without fraud. This enables business to operate on a continual basis and that it also provides trust to investors that financial statements are accurate so as to perhaps invest in and prolong functionality and longevity of the business.
The different type of assurances services carried out by the accountancy profession and why assurance can never be absolute?
Before we look at the different types of assurance services, we must first understand what Assurance engagement is all about. An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria2. Its key elements include: three party involvement, subject matter, suitable criteria, sufficient appropriate evidence and a written report. In addition, there are two types of assurance engagements namely- Reasonable assurance, where there is a high level of assurance but is less than absolute assurance, and lastly limited assurance, where there is less than a reasonable level of assurance who’s conclusion will tend to be a negative one.
There are numerous types of assurance services provided in the market today.
1. Statutory Audit/ Financial Statement Audit: The prime example of assurances services offered is the Statutory Audit. This is especially the case because it is a legal requirement that companies of a certain size have to undertake it. These companies tend to provide their stakeholders as well as the general public a copy of their financial statements, subject to its entity nature.
2. Climate Change & Sustainability Audit: The new challenges faced in today’s business world where competitive advantage is somewhat gained through a company’s ability to be more sustainable requires this Audit. Assurance is given in two ways- reporting and strategy.
3. Systems & Process Assurance (SPA): The use of IT in financial reporting today has become increasingly dependent. It is crucial therefore to gain assurance on design, operational controls, internal controls, and documentation to provide accurate and reliable information to complement effective decision making policies.
4. Others: These are examples of assurances provided in relation to the…