So, going on a little bit more, why study assurance and attestation? Here you're going to see my...one reason I love teaching audit. One perspective about the role of assurance is this a little bit of academic gobbledygook, if you will, but I think it's a really good point that Professor Pentland makes here. Substantively, auditors are centrally implicated in the social production of trust in our financial markets. Auditors give comfort to people who are vulnerable to erroneous, self-interested, and possibly fraudulent financial statements from corporate management. Now, a couple of things I want to say about this quotation. There's a big difference, isn't there? Between financial statements that happened to be wrong because of an honest mistake and financial statements that are purposely wrong due to fraud. So, the honest mistake is what Professor Pentland is referring to there when he says erroneous. When he says possibly fraudulent that is the intentional misstatement. And then you have a very interesting category in between, where it's probably not consciously intentional, but you have this self-interest, you see. When management produces financial statements that are supposed to faithfully represent their business, it's very difficult, perhaps impossible, for them to be objective. So you have lots of opportunity for subconscious bias. Not fraudulent, you see with fraud you need an intent to deceive, you see. But with a self-interest manager, you can very easily have subconscious bias creep into the financial statements. In that subconscious bias even if it's small in any one, let's say, quarter of a year, because as you probably know quarterly reporting is a very big thing in the United States and worldwide, firms have earnings calls every quarter. And if you have just a little subconscious bias in each quarter, in those little subconscious biases are positively correlated over time it can grow and be material enough to make a difference in the judgements of reasonable users. So assurance professionals, let's summarize Professor Pentlands' academic speak in a shorter more succinct way, assurance professionals are in the comfort production business. At the same time, they're producing comfort, they are guardians of the public interest. This makes...hopefully it piques your interest. Some people choose what they do in life, in part, because it's a vocation, and vocation, if you go back to its root, it says vocare, which is a calling, which means it is something that you actually truly care about. You want to do something, I'm not talking about changing the world [laughter]. I'm talking about doing your part though, to add value to society, by being a guardian of the public interest, by producing comfort where it's deserved, but also some discomfort where it's warranted. In this sense, I like to help you develop an overall mental model, and overall way of thinking about auditors that's very different, very different, in my opinion, than what the stereotype of an auditor is. You see the stereotype of an auditor is this person with green eye shades and coupled away in some corner, and actually makes money only by preying upon companies, taking a little bit of their hard-earned money, putting it in their pocket and just fulfilling a compliance role. Well, if you truly are an auditor who's in the comfort production business, and your guardian of the public interests, that stereotype could not be further removed from the truth. So what you really have here is assurance, which is something you now know to be an independent service where you're improving the quality of information even perhaps by improving its relevance, its reliability, or even its context for decision-makers. This improves...assurance improves information quality. When information quality is improved, that gives comfort to trusters, and knowing that there can be comfort at the end of the day, if there's a third party assurance provider, will give rise to a demand for assurance. So, you want to get a loan at a bank? Show me your financial statements. So, here they are. Okay, these numbers look good. Where's your audit report? I trust you but only so far, says the bank. So they will demand assurance often. You can sometimes get big loans without an audit especially if you say, If I don't pay you back, here's my asset that you can have. But if you're trying to get an audit where there's not this real tangible valuable asset that the bank can have, you can bet it's very likely that they'll want an audit demand for assurance. This demand for assurance in turn produces assurance which in turns improves information quality and you have a virtuous cycle here. Comfort goes to the trusters. This demand for assurance arises and it actually see the comfort that trusters get from the audit itself giving rise to more demand for the audit.
