Application of the ICAEW Framework for Analysis of the Public Interest to Regulation of Audit Companies in the U.S.

• In Event: Emerging Research Session I: Issues in Auditing, Information Systems and Public Interest

Abstract

This project proposes to analyze the current standards and regulations applicable to the auditing profession in the United States by applying the ideas presented by the Institute of Chartered Accountants of England and Wales’ (ICAEW) Acting in the Public Interest: A Framework for Analysis. The framework laid out would be explained and discussed. The importance of transparency to the audit process and regarding the independence of the audit companies and its relationship to the establishment and continuance of market trust in the effectiveness of audits will be explicitly addressed.
The effectiveness and flaws of regulation by regulatory bodies versus regulation by market forces would be introduced and discussed. We believe the combination of the ICAEW framework and potential flaws in regulation by regulatory bodies make a compelling case for greater transparency into auditing companies, specifically those that audit 100 or more SEC clients a year.
Specific areas of discussion would include the capture/co-option of the regulatory process by the parties subject to regulation, concerns about the increasing size and concentration of auditing firms, the impact of “too big to fail” fears on potential regulatory action, and the significant limitations on the PCAOB surrounding the release of inspection results for audit companies.
Three reforms for audit firms that we believe would lead to greater transparency for audit firms are the public release of annual audited financial statements by auditing companies; the public release of performance inspections and enforcement actions by the PCAOB; and the public identification of lead auditors. Each of these proposals will be introduced and discussed. Testimony and recommendations from several Treasury Department and congressional hearings and committees will be related. Regulation in international settings that is similar or that seeks to address the same issues will be introduced. Each of these reforms uses the market as a means of regulation. This fact will be tied back to the discussion of the effectiveness of alternative regulatory methods.
This work will contribute to the literature by providing greater exposure to the ICAEW Public Interest Framework and give an example of the application of the framework. In addition, the discussion of regulatory methods and concerns about the perception of auditing companies by the market should provided greater insight to a larger audience about regulatory options that are being discussed by U.S. and global regulatory bodies.

Authors

• Susan Havranek, The Pennsylvania State University Harrisburg Campus

• Marie Blouin, The Pennsylvania State University Harrisburg Campus