Limited Assurance Engagements: Bankers, Auditors, And Reality

Abstract

Bankers are becoming increasingly reliant on limited assurance reports (LARs) issued by accountants. A clear understanding the level of assurance intended by these reports aids in optimal management of the credit function and leads to efficient allocation of scarce resources. The difficulty lies in that accountants cannot quantify, and thus users may not understand, how much assurance the accountant intends to convey in a LAR. This raises the concern that bankers may be making suboptimal decisions based upon a misconception of the assurance intended by the accountant. This paper presents the results o fan empirical test designed to access whether bankers and accountants have a congruent understanding of the assurance intended by several common LARs. The findings indicate a significant difference exists between bankers’ and accountants’ perceptions of the intended assurance levels. Particularly, bankers believe interim reviews provide more assurance than they really do and they believe reviews of financial forecasts provide less assurance than they really do.