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How The Private Sector Could Audit The Auditors
Daily Policy Digest

Regulatory Issues / Regulation

Tuesday, March 26, 2002
Many people may not be aware of it, but the National Association of Securities Dealers (NASD) is the world's largest self-regulatory organization. Using private-sector funds, it licenses, registers and educates securities industry participants; writes rules; performs examinations, investigations and enforces NASD rules and federal securities laws.

 Last year, NASD expelled, suspended or barred more than 800 participants from the broker/dealer industry. By contrast, no Big Five accounting firm has ever failed a "regulatory" review by one of its peers.

 Robert R. Glauber, chairman and CEO of the NASD, has come forth with suggestions of some "first principles" any private-sector organization might employ if it is accorded the responsibility of overseeing the auditing profession:
  • It should be an independent organization with a sizable professional staff, and sufficient technology and infrastructure to stay apace with the accounting profession.
  • It should have a strong mandate from the government, giving it full authority to discipline the industry through fines and expulsions.
  • To regain investor confidence, it should have a board that includes corporate insurers, institutional investors, broker/dealers and the public -- with accountants being a small minority.
  • It should have assured funding from many of these same self-interested parties -- especially those with the biggest stake in the success of the system.
Finally, it should be subject to strong, appropriate oversight from the Securities and Exchange Commission and Congress.

 Source: Robert R. Glauber (NASD), "Let the Private Sector Audit the Auditors," Wall Street Journal, March 26, 2002.

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