# Assurance in Business: Definition, Types, and Key Examples

## What Is Assurance?

Assurance is financial coverage for an event that is certain to happen. It is both a product and a service (such as auditing and validation provided by professionals like accountants). Whole life insurance is assurance. It provides ongoing coverage and guarantees a payout upon death. Assurance can be important for risk management and in ensuring financial reporting accuracy. It is different from insurance, which provides coverage for potential events over a specified period.

### Key Takeaways

*   Assurance involves financial coverage for events that are certain to happen, contrasting with insurance that covers potential events.
*   Whole life insurance is a prime example of assurance, guaranteeing a payout upon the policyholder's death.
*   Assurance services, often conducted by accountants, validate the accuracy of financial documents, enhancing trust and risk management.
*   Audits provide assurance by ensuring the accuracy and completeness of financial statements, boosting stakeholder confidence.
*   Negative assurance suggests accuracy in the absence of contradictory evidence, though it doesn't guarantee no errors exist.

## How Assurance Works in Financial Coverage

[Whole life insurance](https://www.investopedia.com/terms/w/wholelife.asp) is a good example of assurance compared to term life insurance. In the U.K., "life assurance" is another term for life insurance. The adverse event that both whole life and term life insurance deal with is the death of the person the policy covers. Since the death of the covered person is certain, a life assurance policy (whole life insurance) results in payment to the beneficiary when the policyholder dies. 

A term life insurance policy, however, covers a fixed period—such as 10, 20, or 30 years—from the policy's purchase date. If the policyholder dies during that time, the beneficiary gets money; after the term, no benefit is paid. Assurance covers events that will happen, while insurance covers potential incidents, like dying within 30 years.

## Exploring Different Types of Assurance Services

Assurance services are provided by professionals like accountants and lawyers. They ensure the integrity and usability of business documents and information. Assurance in this context helps companies and other institutions manage risk and evaluate potential pitfalls. Audits are one example of assurance provided by such firms for businesses to assure that information provided to shareholders is accurate and impartial.

[Assurance services](https://www.investopedia.com/terms/a/assurance-services.asp) are a type of independent professional service usually provided by certified or chartered accountants, such as certified public accountants (CPAs). Assurance services can include a review of any financial document or transaction, such as a loan, contract, or financial website. This review certifies the correctness and validity of the item being reviewed by the CPA.

## Example: Assurance in Financial Audits

As an example of assurance services, imagine investors suspect a company is recognizing revenue too early, which might lead to good short-term results but bad future outcomes.

Under shareholder pressure, management hires an assurance firm to review accounting systems. The summary will assure shareholders and investors that the company's financial statements are accurate and revenue recognition policies are in line with [generally accepted accounting principles](https://www.investopedia.com/terms/g/gaap.asp) (GAAP).

The assurance firm reviews financial statements, talks with accounting staff, and interviews customers and clients. The assurance firm makes sure that the company in question has followed GAAP and assures stakeholders that the company's results are sound.

## Comparing Assurance vs. Negative Assurance

Assurance refers to the high degree of certainty that something is accurate, complete, and usable. Professionals confirm these assurances after thoroughly reviewing documents and information.

[Negative assurance](https://www.investopedia.com/terms/n/negative-assurance.asp) refers to the level of certainty that something is accurate because no proof to the contrary is present. In other words, since there is no proof that the information is inaccurate or that deceptive practices (e.g., fraud) occurred, it is presumed to be accurate.

> **Fast Fact**
>
> Negative assurance does not mean that there is no wrongdoing in the company or organization; it only means that nothing suspecting or proving wrongdoing was found.

Negative assurance usually follows assurance of the same set of facts and is done to ensure that the first review was appropriate and without falsifications or gross errors. Therefore, the amount of scrutiny is not as intense as the first review because the negative assurance auditor purposefully looks for misstatements, violations, and deception.

## What Does Life Assurance Mean?

Assurance has dual meanings in business. It refers to the coverage that pays a benefit for a covered event that will eventually happen. Assurance also refers to the assurance given by auditing professionals regarding the validity and accuracy of reviewed documents and information. These auditors exercise great care to make these positive assurances.

## What Is an Example of Assurance?

Whole life insurance is perhaps one of the best-understood examples of assurance. As long as the policy remains in force, this type of insurance guarantees to pay a death benefit at the death of the insured, despite how long that event takes to occur.

## What Is Meant by Assurance in Auditing?

Assurance in auditing refers to the opinions issued by a professional regarding the accuracy and completeness of what's analyzed. For example, an accountant assuring that financial statements are accurate and valid asserts that they have reviewed the documents using acceptable accounting standards and principles.

## The Bottom Line

Assurance is coverage that pays a benefit upon the eventual occurrence of a certain event. It differs from insurance in that it is persistent, while insurance has a defined duration of coverage and covers potential events. Assurance benefits both individuals and businesses by offering persistent coverage and professional validation services, such as accounting audits. Assurances in auditing can help companies address risks and potential problems affecting the accuracy of their reporting. Negative assurance is a less intense review that still offers a level of accuracy confidence due to the absence of contradictory evidence.