In other words the buyer identies and hires the

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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 and independent. 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.

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