ABSTRACT
The history of public accounting can be describes as a series of scandals followed by voluntary or mandated reforms. The McKesson & Robbins scandal, the Institute of Public Accountants published its first Statement on Auditing Procedure requiring auditors to observe their clients’ physical inventory counts and confirm receivables via direct communication with debtors. Federal legislation was averted only after accountants adopted significant reforms. The Financial Accounting Standards Board establishment in 1973, an accounting scandal at Equity Funding Corporation of America threatened the new board’s existence. The congress tightened regulation of savings and loans through the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The standards sought to enhance audit quality by improving auditors’ procedures for evaluating internal controls, performing analytical procedures, and evaluating accounting estimates. Some scandals led accountants to write new accounting standards to close perceived loopholes. Other frauds prompted auditors to adopt more rigorous testing procedures.
