Why is there information risk?

The information risk may be due to:

- Conflict of interest: managers may present biased information, as they are also evaluated on the
information.
- Consequence: information provided forms the basis of many users’s decision.
- Complexity: many users do not have the expertise required to determine the quality of
information presented
- Remoteness: the separation of owners from management prevents users from assessing
information quality.

Why we need assurance service?

We need guaranteed service for the following 3 main reasons:
Firstly, Information risks will be reduced thanks to assurance services. Assurance Service is a
service in which the auditor obtains sufficient appropriate evidence to draw conclusions that
increase the confidence of users (not only with responsible parties) about the results of
measurement or assessment based on the criteria for the assurance service object. Based on this
definition, I understand that Assurance Service can improve the quality of information for
decision makers. Most financial report users are not in a position to produce financial accounting
information personally or to establish the credibility of the process by which such information is
prepared and presented to them. . Therefore, they require some assurances to the quality of the
information in terms of the attributes of information (relevance, faithful representation,
comparability, verifiability, timeliness and understandability); which leads to the demand arises
of assurance service to solve the problem of trust in financial reports.
Secondly, one of the major benefits of assurance is increasing relevance and reliability of
assured information, which means that shareholders and debtholders will invest with greater
confidence, reducing information risk, and therefore a reduced cost of capital. Furthermore,
financial analysts will make more accurate and informed recommendations. Both benefits should
result in improved allocation of resources across range of investment opportunities.
Thirdly, Assurance Service is needed because it may also result in two following benefits:
recommendations by the assurance provider to improve the efficiency and effectiveness of
operations; a positive influence on the behavior of people whose activities are being assured.
These benefits will help a company identify problems and improve performance. For example,
auditors conducting a financial report audit make recommendations to their clients regarding
risks and potential improvements to internal control systems.
Why can we only provide reasonable assurance and
not absolute assurance?
Reasonable assurance is understood as a high level of assurance, but not an absolute assurance.
Auditors cannot absolutely assure the truthfulness and faithfulness of financial reports even if
they have fully complied with auditing standards. Because every audit still has inherent
limitations, detecting all errors in financial statements is impossible.
Inherent limitations are the objective limitations of the audit in detecting irregularities in the
entity, and are therefore officially recognized in auditing standards, which originate from:
- Nature of financial reporting: Preparing and presenting financial reports requires making
judgments in applying the provisions of the financial reporting framework to suit the actual
circumstances of each unit, for example when estimating provision, depreciation... As a result,
some items on the financial statements have potential errors due to the judgments of preparer,
and they cannot be completely eliminated even if the auditor applies additional audit procedures.
- Nature of audit procedures: The auditor's ability to gather audit evidence is limited due to issues
such as:
• The auditor may not be able to obtain sufficient appropriate evidence if the Board of Directors
of the entity being audited or another person intentionally or unintentionally fails to provide
sufficient information relevant to the financial statements or information that required by the
auditor.
• Fraud can be done in a sophisticated and thorough way to conceal it. Audit procedures to
collect audit evidence may not help detect all intentional acts, such as colluding to falsify
documents... giving auditors confidence, because auditors are not be trained to become experts in
verifying fake documents.
• An audit is not an investigation or inspection of violations, so the auditor does not have the
right to investigate, inspect, interrogate, or search like investigations by law enforcement
agencies.
• The balance between time and reasonable cost of each audit.