Assurance processes involve many legacy compliances, and it is fairly unique. Hence, many company owners might feel confused about what exactly internal and external assurance are, and what impact they have on the company. In this narration, we have compiled the definition of internal assurance, and the benefit it brings to company hereafter.
Internal assurance refers to a systematic and objective appraisal within a company. Internal assurance aims to add value and improve the performance of the company through an evaluation of the company’s internal control. In general, internal assurance uses required information on how the company operates and through analysing the information, it shows the areas of strength and weakness and risk management.
Benefits of Internal Assurance:
- Increase in productivity/quality: Through internal assurance, The Company will be able to evaluate the effectiveness and efficiencies of internal control.
- Reduce risk: Internal assurance involves risk management. Hence, it helps a Company to evaluate and mitigate any uncertainties or possibilities that could affect the Company’s performance.
- Confidence of shareholders/employees: It assures that the Company has a systematic internal control system that could assist a company to accomplish its objectives.
External assurance refers to a periodic, objective and sole examination of the financial statement of a company. It must be conducted by the third party, and it is usually appointed among the shareholders. External assurance aims to publicly express the fairness of the financial statement of a company and ensure all the account disclosed annually with the compliance of Accounting Principle.
Benefits of External Assurance:
- Improves the internal assurance system: External assurance serves as guidance of internal assurance system to comply. Hence, it helps to improve the accuracy of internal assurance as well.
- Provides credibility: As external assurance is conducted by third parties; it increases the credibility of the company as the stakeholders will be able to view the financial statement of the company with high transparency.
- Provides confidence to shareholders: As mentioned above, the result of external assurance is transparent, and it has high credibility. In this narration, shareholders can rely on the result of decision-making.
Difference between Internal and External Assurance?
Cheng & Co has compiled a list of differences between Internal and External assurance:
|Internal Assurance||External Assurance|
|Objective||Evaluation and examination of the company’s performance||Evaluation and analysis of the company’s financial statements|
|Necessity||It is not necessary as it is viewed as an operational activity which helps to improve the company’s performance||It is necessary as it is viewed as an obligation for external parties to review if a company has complied with the laws and regulations|
|Employment Requirement||Can be done within the company.||Can only be done by third parties.|
|Appointment of employment||Appointment can be arranged within the company||Appointment can only be arranged via shareholders’ discussion|
|Usage of Assurance||For management purpose||For stakeholders (government, customer, or the general public) to view|
|Duration||Continuous process||Once in a year|