Why is it important?

Assurance – an independent assessment of a company’s reported information – is essential for increasing credibility, accuracy and trustworthiness of that information for investors and other stakeholders.

Context

While assurance is standard for financial data, it is a new requirement for  non-financial disclosures. Under EU's Corporate Sustainability Reporting Directive (CSRD), assurance has been introduced with the goal to boost data reliability. The regulation currently allows for two levels of assurance: limited and reasonable.

In the audit report, the auditor provides a conclusion stating whether the company’s report has obtained "limited" or "reasonable” assurance that the reported information is free from material misstatement. 

Limited assurance – also known as  moderate assurance – offers a lower level of confidence compared to reasonable (or full) assurance. This is due to its narrower scope, meaning:

• fewer tests
• smaller sample size of data examined
• practitioner mainly performs analytical procedures, inquiries, and reviews rather than detailed testing of the reported data

The goal is to understand the processes used to compile the information and to identify areas where material misstatements are likely to occur, rather than confirm the complete accuracy of the data. 

Reasonable assurance refers to a higher level of assurance. Its goal is to provide stakeholders with confidence that the reported information is free from material misstatement or error.

It involves comprehensive procedures, including:

• Detailed testing of transactions and balances
• Gathering sufficient and appropriate evidence
• Performing substantive tests, such as vouching and tracing
• Conducting internal control assessments and inquiries with management
• Analytical reviews

Despite its higher level of assurance, reasonable assurance is not absolute. There is always a risk that material misstatements may not be detected due to factors such as fraud, error, or limitations in the audit process. Auditors rely on sampling, judgment, and reasonable evidence, but this does not guarantee the complete accuracy of the financial or non-financial reports.