You may have come across the term “assurance” in accounting before. But what is assurance in accounting exactly and do you need it?
Assurance gives people outside your business confidence that your financial information is solid. No matter whether you’re looking for funding, building trust with clients, or just want peace of mind, it can make a big difference.
Audit and assurance will often come up in the same conversation. But while they’re connected, they’re not the same thing.
What is an audit?
An audit is a detailed review of a company’s financial records, processes, and controls. Independent professionals carry out audits to assess whether financial statements accurately represent the organisation’s financial position.
An audit checks the actual numbers – your financial statements – to confirm their accuracy. Here is more detail on annual accounts preparation.
Audits:
- Check that financial records follow accounting standards and legal rules.
- Validate whether financial statements are free from major errors.
- Give shareholders and stakeholders confidence in the company’s finances.
Audits can be legally required or voluntary, depending on the business’s size and type. They help organisations identify fraud, strengthen internal controls, and build credibility.
There is a mandatory audit requirement for companies that go above two out of three set thresholds in terms of turnover, balance sheet / total assets or number of employees.
However, these thresholds are increasing as of the financial year starting 6 April 2025, reducing the reporting and audit requirements for many companies.
In the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, the government amends the Companies Act 2006 to change the thresholds for:
- Micro businesses: the turnover threshold has increased from £632,000 to £1 million, total asset threshold from £316,000 to £500,000, number of staff stays at 10
- Small businesses: the turnover threshold has increased from £10.2 million to £15 million, total asset threshold from £5.1 million to £7.5 million, number of staff stays at 50
- Medium businesses: the turnover threshold has increased from £36 million to £54 million. total asset threshold from £18 million to £27 million, number of staff stays at 250
What is assurance?
Audits usually get more attention and might be the more familiar term, but assurance goes deeper and looks past just the numbers. Assurance looks at the processes behind those numbers to ensure their reliability.
Assurance means someone independent of your business checks your financial records and how you keep them.
It gives investors, lenders, and buyers confidence that what they see is accurate and fair. External accountants or auditors usually carry out this work.
They go over your records, systems, and daily routines, then give their opinion on whether everything adds up and is being run appropriately.
Quick summary: Difference between audit and assurance
Both audit and assurance services help businesses stay transparent and accountable, but they have different roles:
- Scope: Audits examine financial statements, while assurance services cover wider business processes.
- Regulations: Audits are usually required for larger businesses, while assurance services are generally optional.
- Goal: Audits check financial accuracy, while assurance services build confidence in different areas of a business.
Businesses that use both get the clearest picture of their financial position and operational efficiency.
Why is assurance important?
Many small businesses think assurance only helps big companies. However, it offers real value to growing businesses too. For example, it:
- Helps build trust: Banks and investors feel more comfortable when someone independent checks your finances.
- Makes funding easier: Lenders prefer working with businesses that can back up their numbers.
- Identifies potential issues early: A good accountant can catch weak spots before they cause real problems.
- Aids decision-making: Reliable data makes it easier to run your business.
- Supports compliance: Assurance helps you stick to the rules and avoid penalties.
Different types of assurance for SMEs
You won’t find there is a “one-size-fits-all” approach when it comes to assurance. What an SME needs will depend on its particular situation.
Reasonable assurance
This type of assurance process offers a high level of confidence. It involves detailed checks and testing.
You’ll often need this if you want funding or if stakeholders want deep reassurance. It’s the most in-depth type of assurance.
Limited assurance
As the name suggests, this one involves fewer checks. However, it will still give some level of comfort that your accounts appear to be in order.
Limited assurance is generally effective in situations where a business is seeking a review but not a full audit. Here is the full ICAEW guide on limited vs reasonable assurance for more details.
Compliance checks
These checks focus particularly on whether your business follows financial rules. They’re especially useful for staying on the right side of HMRC.
They’re also used to ensure a business’ operations meet industry-specific standards. This type of assurance gives peace of mind without going overboard.
Wrapping up: What is audit and assurance?
We hope you found this article useful and for other guides, check out our full blog. Recent articles include the advantages of break even analysis – and find out, what is postponed VAT accounting?
Think about your size, your plans, and what others expect from your business. A tailored approach will invariably work best.
- Size of the business: Bigger or more complex businesses usually need deeper checks.
- Stakeholder requirements: Sometimes banks or investors will ask for specific assurance work to be carried out.
- Business goals: If you plan to grow or raise funds, being able to provide the highest possible reassurance to potential lenders helps you move faster.
Of course, seeking expert advice is always advisable, even if you are confident in which direction to head in.
Here at Accountants East London we offer clear, affordable services that suit all your needs – contact us today for a free, no-obligation chat and see how we can support your business.
