SCREENING OF CLIENTS BY AUDIT FIRMS
Stephen K. Asare University of Florida
At the heart of a free enterprise system is the free flow of reliable information by which creditors, investors, and regulators make informed decisions about the allocation of resources or the need for governmental action. The banker deciding whether to approve a loan, the investor making a decision to buy or sell securities, the local congressman evaluating the fairness of utility rates-all are relying on information provided by others. In many of these situations, the goals of the providers of information differ from those pursued by users of the information ( Watts & Zimmerman, 1986). For instance, in reporting on its own administration of a business, management can hardly be expected to be entirely impartial.
This line of reasoning highlights the social need for independent auditors--individuals of professional competence and integrity who will attest to the veracity of the information on which key decisions are predicated. In this vein, the auditing function is critical to the success of a free enterprise system. Audits increase the credibility of information and allow decision makers to use information with more confidence. By reducing information risk, audits reduce the overall risk of making various types of economic decisions and facilitate resource allocation ( Ashton & Ashton, 1990).
Although professional auditors attest to the reliability of a wide range of information, including financial forecasts and advertising claims, the financial statement audit is by far the most common attest engagement ( Pany & Whittington, 1994). In a financial statement audit, the auditor undertakes to gather evidence and provide a high level of assurance that the financial
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Publication information: Book title: Decision Making in the Workplace:A Unified Perspective. Contributors: Lee Roy Beach - Editor. Publisher: Lawrence Erlbaum Associates. Place of publication: Mahwah, NJ. Publication year: 1996. Page number: 101.
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