A statement of assurance goes a long way toward putting investors’ minds at ease, especially when it comes to regulatory compliance and efficient business management. It allows financiers to focus on the company’s bread and butter -- that is, its primary operations -- and determine whether top leadership is truly doing a good job righting the ship in moribund segments.
An organization publishes a statement of assurance to tell the public that management cares about running an efficient, law-abiding operation. If the business is a small player -- that is, not a household name -- the statement might help put it on the map in the category of “well-run companies.” Investors then would take note and consider ways to prop up the company’s balance sheet. Generally speaking, corporate management issues an assurance statement to describe tactics and tools they’re using to prevent lingering inefficiencies in internal processes, as well as to tell regulators that there are specific controls in place to mitigate risks.
Internal controls, as well as the tools to manage them, are integral to a statement of assurance. These controls are the hodgepodge of tools, policies and procedures a business relies on to prevent operating losses from specific risks. These run the gamut from technological breakdowns and fraud to errors and adverse regulatory decisions that might bring hefty fees and penalties. An assurance report illustrates how department heads use a cookie-cutter approach to cope with operating risks, along with planning and leadership skills they display when controlling the work of personnel in sensitive segments. These include cash management, inventory storage, corporate treasury and payroll administration.
Before preparing and publishing an assurance statement, corporate management often goes through a series of operating adjustments to make sure employees work according to plan and don’t break the law. In this exercise, factors such as pay grade, title or position in the organizational chart may not necessarily warrant a specific adjustment. For example, top leadership might put an accounting manager in charge of cash inflow and outflow monitoring -- a task that normally is the purview of the corporate treasury department. Likewise, senior executives may direct corporate governance personnel to track employee performance trends and determine whether operating rules are fostering employee productivity. The latter initiative typically is the responsibility of the human resources department. Here the general idea is to create cross-departmental groups to double-check the work of primary employees and make sure employees execute tasks in accordance with top leadership’s stipulations.
Various groups delve into a company’s statement of assurance to establish risk probabilities, understand tools the business is using to mitigate them and identify which outcomes are more likely to happen. External auditors and regulatory investigators pore over assurance reports to pinpoint which controls are in place to prevent fraudulent or inaccurate data reporting. Business partners -- such as customers, vendors and lenders -- also might require that a company produce a statement of assurance before doing business with the organization.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.