[The American Institute of Certified Public Accountants (AICPA) and its affiliated state societies promote restrictive accountancy laws that limit both the right to express opinions on financial statements and the use of certain occupational titles to licensed public accountants. Although occupational licensing, like other forms of government regulation, is justified as being in the "public interest," critics (e.g., Stigler 1971; Peltzman 1976) suggest that licensing arises because of the professional groups' interest in using the coercive power of government for their own economic advantage. Until 1979, CPAs were content to limit state regulation to the audit function, permitting unlicensed accountants to perform other accounting tasks. With the growing importance of review and compilation services, however, CPAs have sought to restrict the performance of these services too. In addition, the AICPA and state CPA societies have used their influence with state legislatures and licensing boards to impose limitations on the use of professional titles such as "public accountant," "accountant," and "auditor." Whereas some states have adopted relatively permissive licensing laws, others restrict all analytical work and professional titles to licensees. This study explains why some states have adopted more restrictive licensing regimes than others. Hypotheses are developed to test the power of interest groups, political systems, and socioeconomic variables in explaining such differences. The evidence, based on both univariate and multivariate techniques, supports the following general conclusions. Restrictive licensing regimes are more likely in states where the interest-group strength of CPAs is high, as measured by their numbers relative to public accountants who are not CPAs. Restrictiveness is inversely related to statewide competition between Republicans and Democrats and is slightly related to legislative turnover.]

Explains why some states in the United States have adopted relatively permissive licensing laws for public accountants. Use of hypotheses to test the power of interest groups, political systems and socioeconomic variables in explaining differences in licensing requirements; Role of the American Institute of Certified Public Accountants.

The economic theory of regulation suggests that occupational licensing laws are enacted and administered to advance the interests of licensed practitioners. For example, grading standards on licensing examinations could be altered to protect incumbent practitioners from new competitors. This possibility is investigated with time series data of Uniform CPA Examination results for California and Illinois. The results indicate that when the exam was graded by the individual states, exam failure rates increased with downturns in economic activity (as measured by unemployment rates). However, the evidence shows no statistical relation between failure rates and economic activity in the years after each of the states adopted the AICPA's Advisory Grading Service.

[The economic theory of regulation suggests that occupational licensing laws are enacted and administered to advance the interests of licensed practitioners. For example, grading standards on licensing examinations could be altered to protect incumbent practitioners from new competitors. This possibility is investigated with time series data of Uniform CPA Examination results for California and Illinois. The results indicate that when the exam was graded by the individual states, exam failure rates increased with downturns in economic activity (as measured by unemployment rates). However, the evidence shows no statistical relation between failure rates and economic activity in the years after each of the states adopted the AICPA's Advisory Grading Service.]

Budgeting, Budgetary slack, Participative budgeting, Risk aversion

Reviews the book 'Positive Accounting Theory,' by Ross L. Watts and Jerold L. Zimmerman.