Synopsis

The U.S. Securities Acts of 1933 and 1934, which were enacted in the wake of Ivar Kreuger’s suicide, required American companies to publish audited financial statements, and created the Securities and Exchange Commission (SEC) to regulate financial reporting. Five years later, after investigating the auditors’ failure to detect fraud at McKesson & Robbins, the SEC recommended a number of reforms to strengthen auditing procedures. The American Institute of Accountants responded by establishing the first permanent committee to write authoritative auditing standards.

Discussion Questions

1. How did the Securities Act of 1933 attempt to prevent financial frauds?
2. What proposal did Congress consider in 1933 that seriously threatened the nation’s public accounting firms?
3. How did the Securities Exchange Act of 1934 attempt to prevent financial frauds?
4. What changes in auditing practice did the SEC recommend after investigating the McKesson & Robbins fraud?