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Unformatted text preview: cussed some of the basic characteristics of inspectors and
their services, let’s consider how these relate to ﬁnancial statement auditors. As
noted previously, the demand for the assurance provided by a house inspector
comes from information asymmetry and conﬂicts of interest between the buyer
and the seller. One important difference between our house inspector example
and ﬁnancial statement auditing is that the buyer of a home typically hires the
inspector. In other words, the buyer identiﬁes and hires the inspector rather than
hiring someone that the seller recommends—presumably because by hiring an
inspector directly, they increase the likelihood that the inspector will be objective
However, as was discussed previously, there are some important differences
in most ﬁnancial statement audit settings that shift the model so that the companies selling stocks or bonds to the public typically hire and pay the auditor,
rather than the other way around. To raise capital in the marketplace, companies
often sell many small parcels of stocks and bonds to small investo...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.