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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
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
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