Public Company Auditing Around the Securities Exchange Act
72 Pages Posted: 5 May 2021 Last revised: 7 Jan 2022
Date Written: April 30, 2021
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
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