Auditing Standards & the SEC

Generally Accepted Auditing Standards (GAAS) are developed and enforced by the public accounting profession. The Securities and Exchange Commission (SEC), however, also exercises responsibility with respect to the auditing of public companies, and conducts its own auditing enforcement activities. In recent years, the quality of audits has come under increasing scrutiny, and many users of audited financial records have lost some degree of confidence in the truthfulness and fairness of audited financial statements.1

The causes of the contemporary predicament into which the practice of auditing has fallen lies in the increasingly complex demands being placed on auditors.2 The contemporary predicament of auditing is also attributable, in part, however, to the dual responsibilities exercised over the practice of auditing by the public accounting profession and the SEC.3 The perspectives of the public accounting profession and the SEC on the basic focus of the auditing function tends to be different. Where the primary focus of auditing from the perspective of the SEC is fraud detection, the public accounting profession views fraud detection as but one of the functions of the auditor, and not always the most urgent of those functions.4 The thesis of this study is that GAAS should be formulated by the SEC with input from the public accounting profession, as

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2) administrative proceedings, and (3) reports of investigations.23 Further,the SEC believes that some situations are best resolved by persuading a company to take voluntary corrective action, such as the issuance of restated financial reports. The agency also may exercise discretion in to whom its enforcement actions may be applied. It may limit actions to a company, or it may also include company officers. In some instances, it may also include in its enforcement actions professionals, such as underwriters, attorneys, and accountants/auditors.24 Accountants and auditors are of particular interest to the SEC, as a consequence of their key role in the development and reporting of financial data. In the contemporary period, questions related to auditor independence have been particularly pointed with respect to the crisis faced by financial institutions, particularly savings and loan associations. The direct effects of the savings and loan crisis on the practice of auditing must begin with a consideration the legal actions initiated against major public accounting firms. The most important of these legal actions are those initiated by the Federal Deposit Insurance Corporation (FDIC). These 16 cases, the
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Approximate Word count = 5703
Approximate Pages = 23 (250 words per page)

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