Discussion: "The Effects of Mandated versus Voluntary Auditing Policy on the Quality of Auditing"

The article focuses on effects of mandated versus voluntary auditing policy on the quality of auditing. The paper addresses the question whether the mandatory auditing policy set forth by the Securities Acts of 1933 and 1934 increased the quality of information on which investors in the securities market rely. The choice of the quality level in auditing is seen as the first step taken by the auditing firms. Quality is assumed to be fixed for the period and firms choose its level by perfectly anticipating what they can get in terms of higher price or fee in the competitive second stage. The main consideration this study makes is in is consideration of quality decision that affects the competitive position of the firm. The study predicts the economic consequences of the Securities Act. The effects of regulation on the quality of auditing are spelled out. One of the assumption is that a given auditor must charge all his clients the same fee. This means that the audit firms can discriminate on fees.