- Topic 1: What Is Auditing and Why Does It Matter?
- 1.1 Introduction
- 1.2 The Need for High-Quality Information
- 1.3 The Market for Lemons
- 1.4 The Role of Auditors
- 1.5 Audit Defined
- 1.6 Attest Services
- 1.7 Assurance Services
- 1.8 Other Services Performed by CPAs
- 1.9 Importance of Audit Quality
- 1.10 Indicators of Audit Quality
- 1.11 Size and Scope of the Public Accounting Firm
- 1.12 Legal and Organizational Structure of the Firm
- 1.13 ConclusionThis is the current section.
- Assessment
- CPA Test Prep
1.13 Conclusion
Users of financial statements demand and expect high-quality financial information, which they rely upon when making investment and other resource allocation decisions. Because of information asymmetry inherent in the principal-agent relationship and the presence of both intentional and unintentional misstatements, investors charge risk premiums or refuse to invest in clients with high levels of information riskinformation risk: The risk that information provided or relied upon is materially inaccurate.
Although there are thousands of public accounting firms around the world, the vast majority of the world’s largest public companies are audited by one of the world’s four largest accounting firms (i.e., the Big 4). These professional services firms are typically structured as limited liability partnerships (LLPs), which are owned by partners who employ a series of professionals that include managers, seniors, and staff accountants. The Big 4 and other public accounting firms offer a variety of professional services to their clients, including audit and assurance, tax, and consulting.
Francis, Jere R. “What Do We Know about Audit Quality?” The British Accounting Review, 36 (2004): 345–368.
GAO 2003—Public Accounting Firms: Mandated Study on Consolidation and Competition