Public Company Auditing Around the Securities Exchange Act

72 Pages Posted: 5 May 2021 Last revised: 7 Jan 2022

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Matthias Breuer

Columbia University - Columbia Business School

Jeroen Koenraadt

The London School of Economics and Political Science

Robert C. Stoumbos

Columbia University - Columbia Business School

Date Written: April 30, 2021

Abstract

We explore the landscape of public company auditing around the introduction of the Securities and Exchange Commission (SEC) in 1934. Using a broad sample of historical annual reports spanning several decades, we document that most public companies obtained audits even before the SEC’s audit mandate, which limited the mandate’s impact on audit rates. We further document that these companies selected their auditors based on characteristics reflecting independence and competence, even before the SEC’s mandate. While changes in audit rates and auditor choices were limited, we observe significant changes in the content of audit statements around the introduction of the SEC. These changes, however, appear to reflect concurrent standardization efforts initiated and driven by private-sector actors rather than the SEC. Finally, we do not find any significant impact of the SEC’s audit mandate on capital-market outcomes. Collectively, our descriptive evidence suggests that the introduction of the SEC, while widely viewed as a sea-change in public company auditing, had a limited impact on companies’ reliance on audits and investors’ trust in companies’ reports, at least initially.

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

Suggested Citation

Bourveau, Thomas and Breuer, Matthias and Koenraadt, Jeroen and Stoumbos, Robert C., Public Company Auditing Around the Securities Exchange Act (April 30, 2021). Columbia Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=3837593 or http://dx.doi.org/10.2139/ssrn.3837593

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Matthias Breuer (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Jeroen Koenraadt

The London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Robert C. Stoumbos

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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