Describe how information asymmetry creates the demand for an external assurance service when fulfilling contractual obligations between
Question:
Describe how information asymmetry creates the demand for an external assurance service when fulfilling contractual obligations between an auto manufacturer (e.g., DaimlerChrysler) and one of its unions (e.g., the United Auto Workers). As an example, consider a critical issue facing automotive manufacturers and unions today, the partial outsourcing of the assembly process to key suppliers. Global competition has placed a significant amount of pressure on companies to reduce production and assembly costs. To reduce costs, manufacturers are outsourcing more of a vehicle's production to suppliers, many of which are located in emerging economies. As a result, companies are reducing labor forces in the high-cost countries of North American, Europe, and Australia, most of which are unionized. Most negotiated contracts with the unions allow for outsourcing decisions to occur; however, the contracts stipulate specific conditions that must exist before these decisions are allowable.
Step by Step Answer:
Auditing Assurance And Risk
ISBN: 9780324313185
3rd Edition
Authors: W. Robert Knechel, Steve Salterio, Brian Ballou