An Information Economics Analysis of Financial Reporting and External Auditing.

Key Points

• This analysis aims to characterize the financial reporting process and clarify the roles of GAAP and auditing.
• Utilized an information economics framework
• Derived analytical results
• Explained the role of GAAP in financial reporting
• Clarified the function of external auditing
• Analyzed incentives for firms to acquire auditing services
• Identified the importance of GAAP in structuring financial reports
• Clarified auditing's function in ensuring accurate reporting
• Revealed incentives for firm owners to seek auditing services