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Waiting for Enron: the unstable equilibrium of auditor independence regulation

Kershaw, David (2006) Waiting for Enron: the unstable equilibrium of auditor independence regulation. Journal of Law and Society, 33 (3). pp. 388-420. ISSN 0263-323X

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Abstract

A primary function of auditor independence regulation is to ensure that any financial incentives auditors may have to approve misleading or inaccurate accounting are outweighed by market and regulatory deterrents to compromising an auditor's independence. This article is an inquiry into the current state of this incentive equilibrium in the United Kingdom: the possible costs and benefits that may be incurred by auditors if they elect to acquiesce to management's demands to accept problematic accounting. It argues that the equilibrium position currently incentivizes a rational auditor to acquiesce. On the one hand, the article demonstrates that the recent evolution of audit firm revenue streams has provided auditors with a substantial incentive to compromise their independence and provided management with credible sanctions to pressurize them to do so. On the other hand, the article shows that regulatory and market costs of acquiescence do not counterbalance the benefits of acquiescence.

Item Type: Article
Official URL: http://www3.interscience.wiley.com/journal/1185401...
Additional Information: © 2006 Cardiff University Law School
Library of Congress subject classification: K Law > KD England and Wales
Sets: Departments > Law
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 Apr 2009 13:27
URL: http://eprints.lse.ac.uk/23664/

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