Over the years the accounting profession has been subject to various forms of oversight with varying degrees of success. Nevertheless, it used to be self-regulating. But a series of financial scandals involving once prominent companies such as Enron, WorldCom and Parmalat lead the authorities to consider whether the accounting profession's self-regulatory oversight system was appropriate to meet the necessary objectives. These corporate failures had shown that the self-regulatory system did not produce credible results and "had the potential to undermine investor confidence in the integrity of the securities markets" (The Treasury, 2006). As a consequence a number of countries have reviewed their arrangements for independent oversight of the auditing profession. The United States, for example, has introduced tough external audit regulation under the Sarbanes-Oxley Act of 2002. Canada has also introduced a regulator with extensive powers, including a national inspections unit as independent monitor of major audits, while the British and Australian solutions are based mainly on oversight rather than on full regulatory control (Malthus and Scoble, 2005). However, all these oversight bodies are needed to protect the public and the credibility of financial information. Given the corporate scandals of recent years, the audit profession is now in the forefront of the minds of investors, businesses, regulators and others. Financial reporting, corporate governance and accounting and auditing practices must keep up with the needs of these groups. Effective regulation of the audit profession is one means of ensuring that the profession and the private sector keep pace with these challenges. The purpose of this essay is to discuss the need to strike a right balance between self-regulation and government regulation.

Broadly defined, regulation refers to the making and implementing of rules which dire...

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