The Role of Independent Audit in Reducing Information Asymmetry in Market

Abstract

Some errors and fraud occurred in the accounting may distort the information provided in the financial statements. Therefore, it is important to carry out independent audit of the financial statements before presenting them to the users of information. The audited financial statements are one of the most reliable sources of the information for economic entities when making economic decisions. It is very important that the auditor, expressing his opinion on the financial statements, were impartial and would represent public interest. The information of the financial statements often is not equally understood by investors, lenders and other different users. There is a gap in knowing and understanding of information among the professional auditors and clients. This paper deals with the issues of the asymmetry of information in market. The research problem is: how to minimize the limitations of the influence of the users on information, and the quality of market participants who use the information provided in the financial statements, awareness; does an independent audit add credibility to publish financial information and provide better protection of shareholders, investors, creditors and other interested parties? The aim of the research is to reveal the independent audit role in reducing information asymmetry in market. This objective was achieved by analyzing the theories of economics: information asymmetry, signaling and agency theories. Based on the analysis of the economic theories and using a logical method of analysis it was concluded that independent audit would help reveal a true and fair view of the financial statements and ensure disclosure of equally reliable and full information for all the market participants, would raise reliability of alert the information about the company's performance results and would reduce partially the information asymmetry and thus influence on the efficiency ot the capital market.