INSTITUTIONAL ASPECTS OF AUDITING REGULATION: THE BUDGETING RELATIONSHIPS AMONG THE SEC, CONGRESS AND THE PRESIDENT

The Securities and Exchange Commission (SEC) is responsible for the enforcement of securities laws and the regulation of the accounting and auditing professions. However, it is dependent upon the President and Congress for its annual budget allocation. The dependency upon external parties for vital resource allocations provides a rich setting for the study of the relationships among the SEC, its funders and the accounting and auditing profession. This study employs an institutional theoretic perspective to examine the interactions among these major players. In order to extend the literature, quantitative methods are used to test the applicability of such a theory to SEC behavior and funding.; Multiple regression analysis is used to empirically test the hypothesis that the Commission engages in a series of actions designed to legitimate its existence with third-party external funders. It is hypothesized that the better the SEC legitimates itself in the eyes of its resource providers, the higher the level of its annual allocations of resources. The model tested posits that SEC funding is a function of institutional, economic, and political factors. Specifically, the model states that SEC resource allocations are a function of (1) the level of enforcement actions taken by the SEC, (2) the level of GNP, (3) the number of business failures, (4) the level of the S&P 500 stock index, (5) the political party affiliation of the President, (6) political party control of the Senate, and (7) the size of the federal budget. The empirical results indicate that SEC funding is correlated with the number of enforcement actions undertaken, the level of GNP, the level of the S&P 500 stock index, the political party affiliation of the President, and the number of business failures.