| Written by Mark Funkhouser,
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The latest and greatest thing in the world of commercial auditing is `assurance services.' It is a phenomenon that bears watching. In this column I intend to address three questions: What are assurance services? From where is the concept coming? What does it mean to us as government auditors?
What are assurance services? The concept is being defined by three organizations: the American Institute of Certified Public Accountants (AICPA); the International Federation of Accountants (IFAC); and the Institute of Internal Auditors (IIA). Each of these organizations has extensive information about assurance services on its website.
The AICPA's "Assurance Services -- Definition and Interpretive Commentary" defines assurance services as independent professional services that improve the quality of information, or its context, for decision-makers.
The IFAC's "Proposed International Standard on Assurance Engagements -- March 1999" defines the concept as engagements by professional accountants that are designed to enhance the credibility of information about a subject matter, thereby improving the quality of that information to meet the needs of an intended user.
The IIA in an article entitled "Where We're Going: Internal Auditing Redefines Itself" (Internal Auditor, October 1999) defines it this way: The concept of `assurance' implies that the profession can add value by providing an assessment of the reliability or relevance of data and operations in specific organizational settings.
From where is the concept coming? `Assurance services' is the AICPA's response to declining demand for audits. The AICPA material is clear in indicating that money is a major issue in the development of the `assurance services' concept. One of their documents says that "The profession's annual accounting and auditing revenue -- now standing at about $7 billion -- can be doubled or tripled by performing new assurance services. See how you can get your share by improving the quality of information used by decision makers."
The timing and content of their pronouncements make it clear that the IFAC and the IIA were influenced by the AICPA. The IIA clearly saw the AICPA's development of the assurance services concept as a major move on the turf of its members, particularly when coupled with the phenomenon of `outsourcing.' Indeed, after I read the article on redefining the profession entitled "Where We're Going," I concluded that the short version is that the IIA is going wherever the AICPA chases them.
For its part, the AICPA may be making a strategic mistake. Assurance services can be seen as another step in the erosion of independence that commercial auditing has experienced in recent years. In the October 8, 1999 issue of the Wall Street Journal, SEC Chairman Arthur Levitt strongly criticized external auditors for distancing themselves from audit. He said he has "grave concerns" that the audit process "may be diminished, perhaps even sacrificed in the name of more financial and commercial opportunities."
What does this mean to us as government auditors? We need to continue expanding the role of audit with regard to non-financial information. The continuing work of GASB on `service efforts and accomplishments reporting' and the work that the Government Auditing Standards Advisory Committee on refining performance auditing and fleshing out the role of government auditors with regard to performance measures represent the right directions to move in this regard.
You should be aware, of course, that the assurance services movement represents a possible threat to your function. The best response is a robust program of auditing that includes performance auditing and is focused on long-term positive impact. Performance auditing, done well, does not just provide `assurance' regarding existing information, but in fact produces valuable new information. On the other hand, if you are so inclined, you can point to assurance services as `permission' to do the work that you know you need to do but others have criticized you for attempting because it was outside of your supposed turf.
Finding and reporting real problems and suggesting effective solutions is a virtually unlimited field demanding the best of our intellect and creativity. This is particularly true in government organizations where we're working to achieve schools that teach, streets that are safe, and governments that we can trust and respect. What we need is a new paradigm of auditing, not an alternative to auditing. We need a paradigm of auditing that is built upon the understanding that auditing is a vital component of effective democratic government.
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Funkhouser on Auditing