One of the main tasks of the auditor is to collect

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Unformatted text preview: ement assertions. We will discuss in great depth exactly what those assertions are and how auditors organize and use them in Chapter 5. Obviously, information asymmetry exists between the managers of EarthWear and potential investors. The interests of EarthWear managers and investors may also conflict. For example, if managers are overly optimistic or if they wish to inflate their bonus compensation, they may unintentionally or intentionally overstate the company’s earnings and assets (e.g., by understating the allowance for doubtful accounts or by claiming to have more cash than they really have). One of the main tasks of the auditor is to collect sufficient appropriate evidence that management’s assertions regarding the financial statements are correct. If you were asked to audit EarthWear, how would you go about collecting evidence for the cash account? The process is really quite logical and intuitive. First, you would carefully consider the most important assertions the company is making about the account, and then you would decide what evidence you would need to su...
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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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