Public Company Auditing Around the Securities Exchange Act: Historical Lessons for ESG Assurance

Abstract

We describe the development of public company auditing in the U.S. in the early 20th century to gain perspective on current developments in ESG assurance. Using a broad sample of historical annual reports spanning four decades, we document three facts: First, the spread of public company auditing occurred steadily over the span of several decades. Second, audit services were initially heterogeneous but became standardized through the audit profession's efforts and interactions with other private and public sector actors. Third, the role of regulation in those early developments was seemingly limited to codifying existing practices, as the first federal audit regulation was introduced only late in the development of the profession and did not significantly impact capital markets. Our historical evidence on the early development of public company auditing helps us understand how we arrived at today's widely accepted and highly regulated financial audits. It uncovers parallels to and offers lessons for current developments in ESG assurance.

Keywords: Public Companies, Auditing, Regulation, Securities Exchange Act

JEL Classification: G18, G34, M42