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Unformatted text preview: these ﬁrms dominate the audits of large companies is because they have well-known names and strong reputations. Entities
who buy assurance from these ﬁrms know that potential investors and creditors
will recognize the auditing ﬁrm’s name and reputation and feel assured that they
therefore face reduced information risk.
The fact that the entity being audited typically hires and pays the auditor also
highlights just how important auditor objectivity and independence are to the
investing public. In fact, Arthur Andersen, the once highly regarded member of
the former “Big 5” international accounting ﬁrms, failed in 2002 at least in part
because the ﬁrm lost its reputation as a high-quality, objective auditor whose
opinion could be relied upon by investors and creditors. Later in the book we will
discuss some recent changes enacted to strengthen the independence of ﬁnancial
statement auditors, including prohibiting auditors from providing many kinds of
consulting services to their pu...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.