The market for public accounting services: Demand,supply and regulation

An analysis of the market for public accounting services is derived from agency theory. The theory shows that owners and their agents (employees) benefit from monitoring. Furthermore, the owners and managers of enterprises bear the cost when potential investors and users of financial statements (outsiders) fear that those in control operate the enterprise contrary to the interests of the outsiders. The demand for public accounting services is derived from these concerns. The public accountants' comparative advantages in providing this service, the structure of the market supplying the service, and the nature of the demand for its regulation follow from the initial analysis. In the last part of the paper the staff reports of the 1972 U.S. House of Representative (Moss) and Senate (Metcalf) committees are examined and compared with the available evidence.