Should auditors work for stock exchanges?

The accounting profession is going through a period of soul searching – and looking for changes that would restore public faith in its practices.

Several steps are being suggested that would entail only minimal government intervention, red tape and regulation.

  • One would make accounting firms work directly for investors by having stock exchanges use a competitive process to select accounting firms to audit the financial statements of companies whose stock is traded on their exchanges.

  • That would take auditors off the payroll of firms they're supposed to be monitoring.

  • Another would be to beef up the strength of the accounting industry's ethics review panel.

  • In the U.S.A. at present, only state accountancy review boards – with varying levels of ability, different standards and their own potential problems of cronyism – possess the power to strip an accountant of his licence.

    In theory, independent directors representing the interests of shareholders employ auditors. But in reality the chummy relationship between management and directors often glazes over any distinction between them.

    But if auditors went to work for stock exchanges, the exchanges could pay them either by billing the publicly traded companies or by pooling money derived from a new, small surcharge to trading transactions – or both.

    Source: Dave Cotton (Cotton & Co. LLP), CPAs (and I'm One) Can Reverse Their Losses, Washington Post, January 27, 2002.

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    For more on Financial Regulations

    FMF Policy Bulletin\30 January 2001
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