The expectations game: Regulation of auditors by government and the profession

• Published in: Critical perspectives on accounting 1991, Vol.2 (1), p.83-107
• Main Author: Gaa, James C.
• Format: Article
• Language: English
• ISSN: 1045-2354; 1095-9955
• DOI: 10.1016/1045-2354(91)90020-E

The actions of members of the auditing profession in the US are constrained by two types of regulation: government regulation, through the Securities and Exchange Commission and the Congress; and self-regulation, through the American Institute of Certified Public Accountants and state boards of accountancy. Controversies about the rights and (especially) the social responsibilities of the profession occur periodically. The most recent of these (the so-called “expectations controversy”) is analysed as a single play in a repeated sequential game between representatives of the profession and of society, over the amount and mix of the two forms of regulation. The model provides a positive explanation of a number of aspects of this controversy. While the actual historical details and dynamics of these episodes of controversy are quite complicated, the analysis in this paper suggests that a small number of forces may be the primary drivers of the process, and are sufficient to explain at least the broad dynamics found in the history of this dispute.