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• 1 Lecture 7 Auditing (Supply and Assurance services)

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• What are attestation services?

  Assurance services with written documents of all findings.

• Is an audit a specific type of attestation service?

  Yes, the financial statements are checked, and the findings are written in a report.

• Name two reasons for the demand for audit services.

  1. Market needs audit because of agency problems, and problems between managers and shareholders. 
  2. Regulations

• What are the three parties in the Three-Party Relationship?

  1. User (Bank, Shareholders)
  2. Responsible Party (The company that makes the Financial Statement)
  3. Auditor (Deloitte)

• Name three safeguards of audit quality.

  - Reputation
  - Litigation (court)
  - Audit expectation gap

• What does hindsight bias mean?

  Assign higher likelihood to occurrence of event after the fact than they would have before the event has occurred.

• Why is a high quality of audit service important?

  Because there are a lot of stakeholders who rely on the audit.

• What are the two problems of the audit profession?

  1. The audit is a 'black box'. Outsiders don't know what happens in the audit process.
  2. The companies pay for the audit. So how reliable is the audit?

• Where is the litigation risk for auditors higher, in the US or in other countries?

  The averagelitigation risk for auditors is a lot higher in the US than in othercountries. In the US it’s a big issue tocommitfraud.

• Ultramares Corporation v. Touche et al 1931

  The question is who can sue the auditor?
  At the moment of the audit the third party wasn’t in the relationship. And the judge decided due to the fact third party wasn’t in the picture yet, they have no right to sue the audit. The first one to benefit from the auditor is the client, not the third party.