Are Regulatory Mandate and Independence Necessary For Audit Quality?

Mandated audit by independent accountants is a key feature of U.S. regulation of financial statements. This study presents archival data on certification activity in the economy, and conducts a field experiment on an unregulated market for certification of baseball cards to investigate the validity of these assumptions. The results show that: (1) Private markets for certification services and potential for conflict of interest are ubiquitous; (2) The grading scales in certification vary in their fineness with pass/fail often used by government agencies; (3) the unregulated market for baseball card certification is dominated by firms who provide higher quality services; and (4) are not independent.