Investors shift financial responsibility for audited financial information to the auditor in order to lower the expected loss from litigation or related settlements. This describes which theory of auditing?
A) explanatory.
B) agency.
C) information hypothesis.
D) insurance hypothesis.

Question

Quizplus · Accepted Answer

The insurance hypothesis suggests that investors use auditors as a form of insurance. By shifting financial responsibility for audited financial information to the auditor, investors aim to lower their expected loss from litigation or related settlements, as the auditor can be held liable for financial misstatements.

Investors Shift Financial Responsibility for Audited Financial Information to the Auditor