This preview shows page 1. Sign up to view the full content.
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
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...
View Full Document
This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.