Conflict With The Role, Duties Of The Auditor And Litigation Concerns?
3.2. Conflict with the Role, Duties of the Auditor and Litigation Concerns
The CCMC believes that the Proposed Standard undermines the role and responsibilities of auditor. It says that “businesses must have a strong system of internal controls and recognizes the vital role external audits play in capital formation and supports efforts to improve audit effectiveness”.
The ultimate goal of audit and role of auditors need to be figured out to further understand the Chamber’s argument. The development of the corporate form of business and the expanding world economy over the last 200 years have given rise to an explosion in the demand, both regulatory and economical, for assurance provided by auditors. The regulatory demand includes law requirements …show more content…
While in the management duration, the agent has fiduciary duty to act in the best interest of the employer, i.e., the principle, the management will tend to intendedly report false financial information or omit some factors, because of the overwhelming of their personal interest over the principle’s interest, causing information asymmetry. Information asymmetry occurs when some parties to a business transactions may have an information advantage over others, i.e., one party has knowledge not possessed by the other. There are two types of information asymmetry: adverse selection and moral hazard. Adverse selection refers to the situation whereby one or more parties to a business transaction, or potential transaction, have an information advantage over other parties. It occurs because some persons, e.g., managers know more about the current condition and future prospects of the firm than outside investors, thus they will hide or disclose information to make the others feel what they want them to feel, by biasing or managing when and how to disclose the information. Moral hazard is a type of information asymmetry whereby one or more party of a business transaction, or potential transaction, can observe their actions in fulfillment of
The CCMC believes that the Proposed Standard undermines the role and responsibilities of auditor. It says that “businesses must have a strong system of internal controls and recognizes the vital role external audits play in capital formation and supports efforts to improve audit effectiveness”.
The ultimate goal of audit and role of auditors need to be figured out to further understand the Chamber’s argument. The development of the corporate form of business and the expanding world economy over the last 200 years have given rise to an explosion in the demand, both regulatory and economical, for assurance provided by auditors. The regulatory demand includes law requirements …show more content…
While in the management duration, the agent has fiduciary duty to act in the best interest of the employer, i.e., the principle, the management will tend to intendedly report false financial information or omit some factors, because of the overwhelming of their personal interest over the principle’s interest, causing information asymmetry. Information asymmetry occurs when some parties to a business transactions may have an information advantage over others, i.e., one party has knowledge not possessed by the other. There are two types of information asymmetry: adverse selection and moral hazard. Adverse selection refers to the situation whereby one or more parties to a business transaction, or potential transaction, have an information advantage over other parties. It occurs because some persons, e.g., managers know more about the current condition and future prospects of the firm than outside investors, thus they will hide or disclose information to make the others feel what they want them to feel, by biasing or managing when and how to disclose the information. Moral hazard is a type of information asymmetry whereby one or more party of a business transaction, or potential transaction, can observe their actions in fulfillment of