SEC Should Calm Markets, Ahead of Possible Audit Crisis

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1 Response

  1. ohwilleke says:

    What ever happened to the notion that auditing functions needed to be separated from other functions of big accounting firms, which was supposed to have become law a few years ago (wasn’t it SOX that included these reforms)?

    Auditing is only a small share of the activity that goes on in big accounting firms. The change in the law was supposed to dramatically reduce the scale of operations involved in an auditing firm, and in turn, reduce the barriers to entry of new firms into the market (legally, all one needs to have to audit a firm of any size is to be a Certified Public Accountant, so the barriers are purely economic), by reducing the size of the big audit firms from tens of thousands of employees to hundreds or a couple thousand employees, in turn distributed regionally to some extent.

    The same law that mandates a separation of the audit function, also mandated changes in who audit contracts are bid for public corporations that was supposed to make shuffling of audit firms more routine, eliminating barriers that lock in and industry specialization had created to competitive bidding by firms and enhancing auditor independence.

    Also, what ever happened to the efforts of regional accounting firms to form federations that would rival the big four and potentially lead to new replacement big accounting firms. As of a couple of years ago, this industry consolidation through federations of mid-sized regional accounting forms was well underway.

    The problem identified in this post is a very real one. But, it isn’t obvious why the solutions already developing in the marketplace and on the books haven’t manifested.