Question

Financial statement users' demand for assurance is similar to that of a potential home buyer who hires a home inspector in that?

1) The buyer [or user] pays directly for this assurance in both situations.
2) There are often information asymmetry and conflicts of interest.
3) The cost of obtaining information is not relevant.
4) Independence is not relevant in either situation.

Answer 1

Financial statement users' demand for assurance is similar to that of a potential home buyer who hires a home inspector because both situations involve paying directly for assurance and dealing with information asymmetry and conflicts of interest.

Step-by-step explanation:

The subject of this question is Business, and the grade level is College.

Financial statement users' demand for assurance is similar to that of a potential home buyer who hires a home inspector because both situations involve:

1. Paying directly for the assurance: In both cases, the buyer or user pays for the assurance they seek. In the case of financial statement users, they may pay for external auditing services to provide assurance on the accuracy and reliability of the financial statements.
2. Information asymmetry and conflicts of interest: Both financial statement users and home buyers may face information asymmetry, where one party has more information than the other. This can create conflicts of interest, as the party with more information may have incentives to misrepresent or withhold information.

Based on the question's provided information, the third and fourth options are not relevant. The cost of obtaining information is relevant as financial statement users may need to pay for assurance, and independence is relevant in both situations as it ensures unbiased evaluations.