Background: Rewriting the Rules
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MARGARET WARNER: This week with revelations continuing to emerge about the collapse of Enron Corporation government investigators focused on how the company managed to hide its losses and debts from the public and the role of the kiting firm that okayed Enron’s books. Enron paid that firm Arthur Anderson $52 million last year — about half for auditing — the other half for consulting services. Among this week’s revelations last February according to Congressional investigators some senior Andersen executives discussed dropping Enron as a client because of concerns about its bookkeeping. In August Enron executive Sherron Watkins warned Enron CEO Kenneth Lay and auditors at Andersen that an elaborate accounting hoax could sink the company.
SHERRON WATKINS, Vice President Corporate Development, Enron: I thought Ken Lay ought to know the facts and look into them.
MARGARET WARNER: In September, Andersen’s top man on the Enron account David Duncan – see in the middle — began overseeing the destruction of thousands of Enron documents. Duncan was fired this week. The Securities & Exchange Commission is responsible for regulating the financial reporting practices of publicly trade companies and the accounting firms that audit them. Today SEC Chairman Harvey Pitt said Enron’s failure showed both systems needed fixing.
HARVEY PITT, Chairman, Securities & Exchange Commission: Investors here and abroad are entitled to rely upon our system as the finest in the world. And we at the SEC intend to fulfill that responsibility. This Commission cannot and in any event it will not, tolerate this pattern of growing restatements, audit failures, corporate failures, and then massive investor losses. Somehow we have got to put a stop to a vicious cycle that has now been in evidence for far too many years.
MARGARET WARNER: Pitt proposed that companies be required to disclose financial information to investors more quickly, more clearly and more thoroughly. He also proposed a new private sector oversight panel for the accounting profession with members chosen from inside and outside the field.
HARVEY PITT: The body should be empowered to perform investigations, bring disciplinary proceedings, publicize results, restrict individuals and firms who have failed to meet ethical or competence standards from auditing public companies. The disciplinary proceedings should proceed expeditiously. And, of course all of the disciplinary actions or decisions should be subject to SEC oversight.