Research on the future of assurance services

In this edition of the Audit Quality Blog, we invited Tim Bauer and Bradley Pomeroy from the University of Waterloo to share highlights from a joint research project we’ve undertaken to better understand the future of assurance services.

When most of us think about the assurance services offered by CPAs, what usually comes to mind is the financial statement audit. As assurance researchers, we know the demand for assurance goes far beyond financial reporting and there is a need to understand the other areas where CPAs (and other service providers) offer assurance services and where there is opportunity for the future. We are addressing this need with a research project to inform the assurance profession, helping it to meet the new and emerging demands in an ever-shifting marketplace.

In this blog, you will learn about:

• areas beyond historical financial reporting where assurance services are currently offered or have the potential to emerge
• how CPAs seek and develop new assurance service areas
• where our research project is going next

ASSURANCE SERVICE AREAS BEYOND HISTORICAL FINANCIAL REPORTING

Our research team conducted an extensive search of public-facing websites to catalogue the market for assurance services beyond financial statement audits and reviews. We identified 33 areas where assurance services are currently offered or have potential to emerge and gathered the following details:

• nature of the service
• underlying subject matter criteria and the assurance or related services/standards
• service providers (CPAs or others)

A glimpse into three of the service areas identified

Service providers with different skills and qualifications are offering a wide range of assurance and verification services. As new service offerings emerge to lend credibility to reported information, not all offerings are created equal. Here are a few examples from our research, including a brief explanation of what the service is:

Fake News Check – Fact checking and credibility ratings for news content, including images, video and textual information. This includes looking for evidence of alterations to the source documents. To our knowledge, there is no formal criteria that can be used to perform assurance services in this area, and CPAs are not currently offering such services.

Proof of Reserves (PoR) for Crypto-Asset Holdings – Intended to verify that a crypto-asset trading platform or custodian has sufficient assets on hand to cover customer balances. There is scrutiny in the market right now related to the limitations of  the services offered in this area. The PoR services that we are mainly aware of to date are agreed-upon procedures engagements. In such engagements, factual findings are described however no assurance opinion is provided.

Environmental, Social and Governance (ESG) or Sustainability Assurance – Third-party verification of an entity’s sustainability information. Regulators globally are looking at requirements for assurance over GHG emissions and other sustainability information and are considering what form of assurance and by whom it should be provided.  The momentum in this area is building rapidly with CPAs and non-CPAs offering both assurance and advisory services.

To maintain the CPA’s relevance in an expanding and fast-changing business environment, the profession must anticipate and stand ready to embrace new services!

HOW CPAS SEEK AND DEVELOP NEW ASSURNACE SERVICE AREAS

To extend the knowledge gained from the cataloguing process, we also conducted interviews to better understand how CPAs seek and develop new assurance services. Below are some high-level insights gained:

Demand is articulated by clients – Clients regularly and routinely approach CPAs with assurance (or other) needs arising from business activities. Interviewees emphasized that taking the client’s lead is more effective when it comes to expanding their service offerings, rather than trying to sell clients on services they feel they don’t need. If attentive to the business activity of their clients and needs expressed, CPAs will have ample opportunity to provide client-valued services.

Regulation and business partners play a role – Interviewees indicated that demand for assurance services arises when clients must abide by criteria/standards due to regulation. Another key source driving demand is clients’ business partners (e.g., vendors, service-consuming organizations, purchasers), who are demanding assurance over aspects of their business as “table stakes” to engage in business activity. That is, “No assurance? No contract!” Most prominent in this context are engagements related to Systems and Organization Controls (SOC).

It often starts with advisory engagements – CPA firms use consulting engagements, such as readiness assessments, in the early stages of service development. After clients create the infrastructure (e.g., processes, policies, controls, information systems) necessary to enable third-party assurance, they are able to shift to assurance engagements.

Talent is key – CPA firms have a considerable demand for talent to deploy in new assurance service areas (e.g, ESG) and insufficient supply. Recent research argues that the successful expansion of assurance service offerings by CPAs depends on the availability of subject matter expertise and expertise in assurance and verification (Knechel 2021).

WHAT’S NEXT

As part of our continued research, and to enhance our findings to date, we are planning upcoming roundtables with CPAs in practice. These discussions will help validate what makes CPAs well positioned to offer services in some areas but not other areas, why certain areas have notable threats or opportunities for CPAs and what is needed for CPAs to successfully expand into new areas. Later in 2023, we will share the detailed results of our research.

KEEP THE CONVERSATION GOING

How are changes in technology and society impacting the assurance services your clients are requesting? What assurance service areas do you think offer the most compelling opportunities for CPA practitioners to expand their service offerings? Email us directly to share your feedback and to learn generally about the opportunities available for participating in ongoing research projects.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.