WP%2001%20intro%20Students - Chapter 1: The Role of the...

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WP 01 intro Students 1 of 5 Chapter 1: The Role of the Public Accountant in the American Economy Omit “Major Auditing Developments of the 20 th Century” p. 8-9 Outside users (lenders, governmental entities, etc.) need information about the company. Internal users (company management) need accounting information to make decisions. However, management has incentives to make the company look as good as possible. Therefore, decision makers are faced with: Information risk Î the risk that information disseminated by a company will be materially false or misleading Audits lend credibility to information by reducing information risk— the risk that information is materially misstated Financial statement misstatements arise due to Audits do not directly address business risk Î the risk that a company will not be able to meet its financial obligations due to economic conditions or poor management decisions Assurance Services Î independent professional services that improve the quality of information for decision makers. Two types of assurance services: 1. Attestation Services - A type of assurance in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about the subject matter that is the responsibility of another party (e.g., management). Three types of attestation services: Type Level of Assurance Risk of Mat’l Misstatement Nature of assurance in report Procedures Examination (Audit of FS) Review Agreed-upon procedures
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WP 01 intro Students 2 of 5 2. Other Assurance Services - Can cover a wide range of services. Focuses on improving the quality of information. Ex: Assurances about how the business is operating, maximizing third party reimbursements (Medicare), CPA Risk Advisory Services. The Accounting Profession’s Credibility Crisis 2000—The Panel on Audit Effectiveness made a variety of suggestions to improve audits. 2001—Enron Bankruptcy
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WP%2001%20intro%20Students - Chapter 1: The Role of the...

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