Over at Discourse.net, George Mundstock proposes a radical change in corporate accounting and audits:
The accounting rules would be set by a government agency (the SEC), not a private group, as today (the Financial Accounting Standards Board). ... The SEC, not private firms hired by the audited company, would do all audits. In appropriate cases, the SEC might even comment publicly on a stock price range that is appropriate in light of what is learned during the audit.
George anticipates several objections, most notably cost, but fails to acknowledge other serious problems with this idea (which, by the way is not new; it's been run up the flagpole several times and always lost):
- Despite SOX, auditors can still provide some non-audit services to corporate clients, which the government couldn't.
- Public sector wages are much lower then private sector, making it hard to attract and retain competent people. The accounting firms already have a hard time attracting auditors because the work sucks and the pay is low by comparison to, say, consulting. On a government wage, only the real dregs of the accounting profession would do it.
- Paying for the enormous expansion of the SEC could be done in various ways, such as a form of user fee, but would still be characterized by the oppositon as a tax increase, which is always politically unpopular.
- The fees paid to finance the system would be attractive targets of budget cutters. As Joel Seligman has obsevered, "Commission budgets have been erratic and have often left the Commission unable to effectively address its required functions." 59 Business Lawyer 1347, 1384.
- Socialized accounting would be a tough political sell. The ability of the stock exchanges, accountants, lawyers, and the like to remain largely self-regulated private sector entities despite numerous attempts to federalize one or more of them demonstrates the considerable political power of these entities.
Seligman observes that: "our securities markets today are the most active, transparent, and successful in capital formation in the world. Any significant change to market structure or self-regulation potentially could enhance or reduce our securities markets' liquidity, transparency, and capital formation." For reasons of both policy and politics, Mundstock's proposal thus looks like a nonstarter.