Do auditing standard setters respond to public concerns? Exploring the economic cycle and auditing standard precision in the pre-PCAOB era.

摘要

Have private auditing standard setters been responsive to constituent concerns? I explore the frequency of auditing standard issuance and the relative precision of auditing standards from 1939 through 2002, before the creation of the Public Company Accounting Oversight Board in 2002. My findings suggest that private standard setters have responded to a changing constituent base, becoming more responsive over time to investor concerns. Auditing standard setters increase the number of standards issued when investors are most at risk of loss, that is, during economic contractions. In addition to increasing the number of auditing standards issued, auditing standards may have precise features that make it easier to document compliance with the standard. However, when I control for number of standards issued, I do not find evidence of a relationship between standard precision and economic contractions. In addition, I find a negative association between precision and regulatory enforcement actions. These results indicate that enforcement is an important part of auditing standard setting and provide insight into an auditor's preferences for precise standards. These findings should be of interest to regulators who create and enforce auditing standards, as well as preparers, auditors, and other stakeholders impacted by auditing standards.