Publication Title

Boston College Law Review


audits and auditors

Document Type



Although corporate fraud is not held in check by our current audit process, in which auditors lack independence from the clients they inspect, numerous attempts to fix this problem have failed. This Article analyzes the history of auditing, which has been neglected in legal scholarship, to argue that the mandatory audit system created the problem of auditor independence. Accountants advocated for the system in order to gain the status of a learned profession; however, they received more than they bargained for. In particular, auditors incurred an obligation to the "investing public," but this undefined group does not actually control the auditors. Auditors answer to the companies being audited. The resulting conflict of interest has proven to be insurmountable.

This Article argues that the problem will be resolved only by returning to its origins in the federal securities laws of the 1930s and by restructuring the relationships involved in public company audits. Part I of this Article proceeds by clarifying the development of accounting into a profession through the dawn of the twentieth century.

Part II looks at the profession in the early decades of that century and focuses on its quest for greater prestige and increased service engagements. This Part also describes the profession's move into the lobbying arena, culminating in its role in the passage of the Income Tax Act of 1913. Part III discusses the circumstances and debate surrounding the passage of the '33 Act. Finally, Part IV considers developments after the '33 Act, including passage of the Securities Exchange Act of 1934 19 (the "'34 Act"), and rulemaking under both laws that followed the lead of the certification requirement of the '33 Act. The Article concludes by arguing that Congress unwittingly created the problem of auditor independence when—at the accountants' own request—it included the financial statement certification requirement in the '33 Act.



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