ABSTRACT
More than two years passed after the stock market crash of 1929 without substantive action from Congress. But the discovery of Ivar Kreuger’s massive accounting fraud brought new demands for reform. Many accounting frauds led to significant changes in testing procedures as auditors tried to close loopholes exploited by clever fraudsters. British author Lawrence Dicksee commented in 1892: “The auditor who is able to detect fraud is—other things being equal—a better man than the auditor who cannot.” Public accounting firms have always been organized as partnerships. A common characteristic of partnerships is weak central authority. Small partnerships operate largely on friendship and trust. Public accounting firms’ consulting revenues continued growing until scandals at Sunbeam and Waste Management raised new concerns about auditors’ close ties to their clients. For much of the twentieth century, public accountants operated with few external restraints. States issued licenses to practice public accounting but rarely disciplined auditors for malpractice.
