Audit Regs Not the Problem

In the wake of a national epidemic of corporate scandals, lawmakers might have a knee-jerk reaction to change audit regulations.

But the existing standards aren’t the problem, said Willie Gist, associate professor of accounting at the University of Arkansas’ Walton College of Business.

“In spite of the scandals,” he said, “nothing has happened to say that the standards themselves don’t work. Before we rush forward with legislation, we need to ask, ‘What are we going to do differently? What are we going to regulate?'”

Gist recently completed a study of the policy process to develop audit rules and reports. The Auditing Standards Board, which is the regulatory body of the American Institute of Certified Public Accountants, changed the Auditor’s Standard Report in 1988. Gist said the study indicates that the ASB change has “closed the expectations gap” and basically made the process about as fair as it can be for auditors and users alike (with users including creditors, bankers, investors and financial analysts).

The problem, however, is making sure companies provide accurate information to auditors and that auditors work with “a bit of professional skepticism,” Gist said.

“The financial statements are the responsibility of management,” he said.

Gist presented his findings recently at the international Symposium on Audit Research in Sydney, Australia. Also participating in the study were Darryl Wilson, assistant professor of information systems at the UA’s Walton College; Bard Ward, dean of the Meinders School of Business at Oklahoma City University; and Trimbak Shastri of the University of Louisville.