As a result they are able to add credibility to

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Unformatted text preview: role in monitoring the contractual relationships between the entity and its stockholders, managers, employees, and debt holders. Certified public accountants have been charged with providing audit services because of their traditional reputation of competence, independence, objectivity, and concern for the public interest. As a result, they are able to add credibility to information produced by management. The role of the Certified Public Accountant is discussed in more detail in Chapter 2. An Assurance Analogy: The Case of the House Inspector LO 3 Before we discuss financial statement auditors further, let’s illustrate the concepts we’ve just covered using an analogy: buying an older home. In the purchase of an existing house, information asymmetry usually is present because the seller typically has more information about the house than does the buyer. There is also a natural conflict of interest between the buyer and the seller. Sellers generally prefer a higher selling price and may be motivated to overstate the pos...
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