Accounting
Chapter 1 Question 1-18
Consumers Union is a nonprofit organization that provides information and counsel on consumer goods and services. A major part of its function is testing of different brands of consumer products that are purchased on the open market and then the reporting of results of the tests in Consumer Reports, a monthly publication. Examples of the types of products it tests are middle-sized automobiles, residential dehumidifiers, flat-screen TVs, and boys’ jeans.
a.) In what ways are the services provided by Consumers Union similar to assurance services provided by CPA firms? The services provided by Consumers Union are very similar to assurance services provided by CA firms. The services provided by Consumers Union and assurance services provided by CPA firms are designed to improve the quality of information for decision makers. CPAs are valued for their independence and the reports provided by Consumers Union are valued because Consumers Union is independent of the products tested.
b.) Compare the concept of information risk in this chapter with the information risk problem faced by a buyer of an automobile. The concepts of information risk for the buyer of an automobile and for the user of financial statements are essentially the same. They are both concerned with the problem of unreliable information being provided. In the case of the auditor, the user is concerned about unreliable information being provided in the financial statements. The buyer of an automobile is likely to be concerned about the manufacturer or dealer providing unreliable information.
c.) Compare the four causes of information risk faced by users of financial statements as discussed in this chapter with those faced by a buyer of an automobile.
1. Remoteness of information. It’s difficult for a user to obtain much information about either an automobile manufacturer or the automobile itself without incurring considerable cost. The automobile buyer does have
Consumers Union is a nonprofit organization that provides information and counsel on consumer goods and services. A major part of its function is testing of different brands of consumer products that are purchased on the open market and then the reporting of results of the tests in Consumer Reports, a monthly publication. Examples of the types of products it tests are middle-sized automobiles, residential dehumidifiers, flat-screen TVs, and boys’ jeans.
a.) In what ways are the services provided by Consumers Union similar to assurance services provided by CPA firms? The services provided by Consumers Union are very similar to assurance services provided by CA firms. The services provided by Consumers Union and assurance services provided by CPA firms are designed to improve the quality of information for decision makers. CPAs are valued for their independence and the reports provided by Consumers Union are valued because Consumers Union is independent of the products tested.
b.) Compare the concept of information risk in this chapter with the information risk problem faced by a buyer of an automobile. The concepts of information risk for the buyer of an automobile and for the user of financial statements are essentially the same. They are both concerned with the problem of unreliable information being provided. In the case of the auditor, the user is concerned about unreliable information being provided in the financial statements. The buyer of an automobile is likely to be concerned about the manufacturer or dealer providing unreliable information.
c.) Compare the four causes of information risk faced by users of financial statements as discussed in this chapter with those faced by a buyer of an automobile.
1. Remoteness of information. It’s difficult for a user to obtain much information about either an automobile manufacturer or the automobile itself without incurring considerable cost. The automobile buyer does have