Simply put, assurance means getting an independent expert to look at something and give their views on its accuracy or quality.
Audit is generally the core activity in wider ‘assurance and advisory work’ undertaken by accountancy firms. An audit is an independent check of whether an organisation’s financial statements are a true and fair reflection of its financial condition. Audits are normally conducted at a client’s premises.
Typical activities that auditors carry out include risk analysis, getting to know the client’s business, building relationships with the client and checking items that appear in the financial statements. As a result of audit work suggestions can be made about how the business could improve its controls and business processes.
Business recovery and insolvency
From time to time a business may encounter problems; for example it may find itself short of capital or it may need to re-organise its operations in order to improve cash flow.
In some cases a business recovery expert may be able to step in and help steer the business through its difficulties and back towards a successful future, whereas in other situations an insolvency expert may have to guide the business through the insolvency or winding-up process, selling off the business’s assets and paying creditors. Both areas of work involve high levels of diplomacy and robustness and a good level of legal and commercial understanding.
Accountants who work in this field are involved in mergers and the acquisition of companies; assessing the financial health of the target company in order to calculate the value of the company for a potential merger or takeover.
Financial accounting involves trying to answer questions such as ‘how do we record the transactions of doing business?’ ‘how do we record sales, purchases, and cash transactions?’ and ‘how much profit did we make and does this match the budgets we produced?’ ‘What do we own and what do we owe to others?’.
Forensic accounting is the detection and prevention of fraud. It involves the use of accounting, IT and investigation skills to search for evidence of criminal conduct on behalf of lawyers and insurance companies. Forensic accounting is varied, and often involves legal disputes, requiring in-depth research, analysis and even being an expert witness in court. No two cases are the same.
The type of clients varies from large listed corporations and offshore trusts to small partnerships, while on the criminal side, cases can include white-collar crimes and other general offences, such as drug dealing, where a visit to a defendant in prison is not uncommon. Large firms often have specialised departments in litigation support composed of qualified accountants.
A mixed skillset is needed: in addition to the research and analytical attributes, the ability to communicate effectively both in writing and in the courtroom is essential. As networking and marketing is where the work comes from, forensic accountants need to develop a wide range of referrers.
This is a growth area for the accounting profession, as it becomes increasingly important for organisations to take more notice of their impact on the environment. Environmental auditing examines how companies can avoid wastage and looks at the costs of setting up environmental controls, such as recycling and minimising energy use.
Tax avoidance and evasion
Tax avoidance and evasion are in the news a lot at the moment. There is a critical difference between the two. Tax avoidance is using tax rules legitimately to pay less tax. Remember, tax avoidance – unlike tax evasion- is perfectly legal, so it is up to the government to change the rules in order for things to change.
An example of tax evasion would be not declaring earnings that you know would be liable for tax; this is illegal. An example of tax avoidance would be declaring earnings, but using legal instruments to ensure the lowest tax is paid. Examples of this include employing a husband or wife in a small business, or giving money, whether a proportion of wages or profits to charity. Accountants are vital in this area and there are many accountancy firms who advise clients, such as sports stars, actors, musicians and other freelancers about complex tax issues related to their earnings.