NCPA - National Center for Policy Analysis

How The Private Sector Could Audit The Auditors

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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