a) In what ways are the services provided by Consumers Union similar to assurance services provided by CPA firms?
The assurance services of a consumer union are similar to what a CPA professional provides to his or her clients. The following points show this similarity:
1. The consumer union conducts an independent evaluation of each commodity similar to that of a CPA professional.
2. The consumer union is an independent body in no way connected with any of the companies whose products are evaluated, which is also the case with the CPA professional.
The consumer union can express an unbiased opinion for the benefit of the consumers, which is also the case with the CPA professionals who can express independent opinions on financial statements.
b) Concept Comparison:
“Information risk” is the risk that information might turn out to be inaccurate, as a result of which, the business decision based on said information would be incorrect or misleading.
As far as consumers of automobile products are concerned, they may face the information risk in the following areas:
1. While buying the automobile, the consumer may lack information from good vendors.
2. The consumers are normally not aware of the after-sale services that vendors should provide.
3. The consumers may also be cheated on prices or through the supply of sub-standard products.
The consumers may take a wrong decision on technical issues like engine capacity or life or maintenance issues.
c) Comparison of four causes of information risk:
Voluminous business transactions of different natures and sizes are the leading reason that adds to the trouble and enhances the information risk.
The complexity of business transactions and the inability to analyze them is also responsible in contributing the information risk.
The remoteness of information is an equally relevant factor nowadays due to the growth in size and scope of business due to globalization and diversification. As a result, it is too difficult to obtain the first-hand sensitive information, and information is made to travel through various channels of communication, which further disturbs the quality and reliability of information. That is to say, it distorts the information.
The bias of the provider of information also affects the accuracy level of information, because it is quite certain that the provider will modify and present the information to suit his or her own selfish purpose. It is often seen that the borrower of a loan, in order to ensure that the loan gets sanctioned in his or her favor, would deliberately try to falsify the financial statements by showing improved a profitability and solvency position.
Cross-verification by the user of information is difficult, as it may be uneconomical and time-consuming.
All of the above apply to an automobile buyer.
d) Compare the three ways users of financial statements can reduce information risk with those available to a buyer of an automobile.
A regular audit of financial statements will go a long way in reducing the information risk. The advantage of this method is that independent expression of opinion by the auditor on the trueness and fairness of financial information provides a great level of comfort and certainty to the users of financial information. The disadvantage can be that the audit may be a costly affair for small- and medium-sized organizations.
A regular audit may reduce the layers involved in the process of communication between the source of information and the ultimate user of information. The advantage would be that it would prevent the distortion of information. The demerit of this method is that it might not be practical in modern times due to the growing dependence on people and machines, which enlarges the process of the flow of information.
The information risk can definitely come down by cross-verification by the users, as it will be advantageous enough to verify the quality of information being