Govt. Proposes Accounting Industry Reforms

SEC Chairman Harvey Pitt said today, ”We have had far too many financial and accounting failures.”

“The commission cannot, and in any event will not, tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses.”

Pitt described the current financial reporting system as outdated and “inadequate.” He said it “has shown serious signs of failing to keep up with the needs of today’s investors,” with Enron as the most serious recent example.

The announcement came on the same day Enron fired its accounting firm, Arthur Andersen. Enron CEO Kenneth Lay cited allegations that Andersen auditors destroyed key documents.

The Big Five accounting company has recently come under fire for its poor job auditing Enron’s records, notably concerning its significant losses and debts.

The SEC recommendations include an independent quality-control panel to regulate and monitor the methods of auditors and corporations in effort to prevent another accounting misstatement.

The SEC, Pitt said, had advised the relevant congressional committees and would collaborate with Congress to implement reforms to the financial regulatory system.

“We initially envision a public body that will be dominated by public members with two primary components — discipline and quality control,” Pitt explained, adding his main objective was to restore public confidence in the investment industry.

The new body, Pitt said, should be composed of individuals unaffiliated with the accounting industry in order to provide more objective oversight of accounting firms.

Pitt said that the panel would not include the American Institute of Certified Public Accountants (AICPA), a professional organization that monitored the industry on its own in the past.

The recommendations come on the heels of Enron’s bankruptcy, the largest in U.S. history.

David Duncan, the Andersen accountant accused of overseeing the destruction of potentially damaging documents, has met with congressional investigators about the financial collapse that caused thousands of Enron employees to lose most of their 401(k) savings.