While I don’t want to re-open the PCAOB discussion or the cage match that ensued (response articles linked here and here), I’d like to approach a similar topic that was sparked in the discussion. This comment was made in response to my PCAOB article and even made it into our weekly Between The Spreadsheets newsletter as the “Funny Because It’s True” comment [Ed note: I chose to include that comment in BTS on purpose because I am a libertarian. I chose it not because I want to give the phony impression of being fair and balanced, but because it was funny as stated in the award.]
I think it's funny when I hear people in audit talking about how they are libertarian. I just think, "You idiot, if you were truly libertarian you would be fundamentally against mandatory audits, you wouldn't have a job if it weren't for government regulation!!!"
I want to clear this up for anyone who believes this to be true. The auditing profession does NOT exist solely because of government regulations, like taxation does. There are a myriad of reasons why companies would like or be required to have audits performed that have nothing to do with government regulations. Saying that auditors would not have jobs without government regulations is equivalent to saying there would be no reason for drug researchers if it weren’t for the Food & Drug Administration. You could also assert (just as absurdly) that there would be no airport security without the TSA.
Yes, as we discussed last week, government regulations make these industries more profitable and that is a type of corporate welfare. However, these industries would exist without the government. We know that because there are many examples of audits that occur today that have nothing to do with the Securities Act of 1933, the Securities Exchange Act of 1934, or the SEC or PCAOB (or the cavalcade of other regulations increasing work for accountants).
Many banks, investment firms, and other organizations require you to submit audited or reviewed financial statements for reasons entirely unrelated to government regulations. For example, if an investor wants to buy a company, he or she may require audited financial statements. Or, if a loan is to be made, a bank may require some form of assurance over the financial statements to assess whether the company is in compliance with lending covenants.
I know there are many of you who have built your entire career on these government regulations and I’m sorry for that (not that you care as you’re most likely rolling in cash). We need to get back to basics: Providing value for our clients and stakeholders, not lobbying the government for more handouts.
These regulations decrease competition as they increase barriers to entry. Less competition means fewer choices for stakeholders and thus lower quality ensues. But if you believe that auditing (tax is another issue) exists solely due to government regulations, you have a fundamental misunderstanding of the industry.