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 the advantage of possibly knowing other users who are satisfied or dissatisfied with a similar automobile. 2. Biases and motives of provider. There’s a conflict between the automobile buyer and the manufacturer. The buyer wants to buy a high quality product at minimum cost whereas the seller wants to maximize the selling price and quantity sold. 3. Voluminous data. There’s a large amount of available information about automobiles that users might like to have in order to evaluate an automobile. Either that information is not available or too costly to obtain.
4. Complex exchange transactions. The acquisition of an automobile is expensive and certainly a complex decision because of all the components that go into making a good automobile and choosing between a large number of alternatives. d.) The three was users of financial statements and buyers of automobiles reduce information risk are also similar. 1. User verifies information him or herself. That can be obtained by driving different automobiles, examining the specifications of the automobiles, talking to other users and doing research in various magazines. 2. User shares information risk with management. The manufacturer of a product has a responsibility to meet its warranties and to provide a reasonable product. The buyer of an automobile can return the automobile for correction of defects. In some cases, a refund may be obtained. 3. Examine the information prepared by Consumer Reports. This is similar to an audit in the sense that independent information is provided by an independent party. The information provided by Consumer Reports. This is similar to an audit because independent information is provided by an independent party. The information provided by Consumer Reports is comparable to that provided by a CPA firm that audited financial statements. Chapter 2 Question 2-19
a.) Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online...
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