Speaking as the final witness before the Senate Banking Committee, Harvey L. Pitt, chairman of the Securities and Exchange Commission (SEC) argued against proposed legislation that would introduce radical reforms for accounting firms, but supported reforms of companies, credit agencies, and accounting standard-setters.
Specifically, Chairman Pitt:
- Opposed limits on non-audit services, mandatory rotation of audit firms, and laws that would halt the "revolving door" through which companies hire auditors directly from their audit teams or lessen the protection given auditors under the Private Securities Litigation Reform Act of 1995.
- Suggested the possibility of bans on accounting firm compensation plans that offer incentives for partners to cross-sell non-audit services.
- Sought greater authority to punish corporate executives.
- Said the SEC will soon circulate for comment a list of current events to be disclosed by companies between their periodic reporting requirements. These are expected to include changes in rating agency decisions about the company, debt triggers or events that can trigger acceleration of obligations, losses or gains of material customers or contracts, and waivers of corporate ethics or rules of conduct for officers, directors and other key employees.
- Sought legislation to clarify that the SEC has the authority to establish requirements for corporate web sites and permit delivery of corporate disclosure through electronic means.
- Sought authority to play a direct role in the selection and approval of the members of the Financial Accounting Standards Board and said SEC would more actively oversee the accounting standard-setting process and ensure future standards are principles-based rather than rules-based.
- Supported more government funding to create his proposed private-sector public accountability board, provide a more secure source of funding for accounting standard-setters and fund additional SEC staff.
Consumer groups are disappointed in Chairman Pitt's position. Listen to Jack Speer's report on NPR News. But accounting firms are likely to be relieved. Chairman Pitt is no stranger to the problems and frustrations of the Big Five, having represented each of them as a private attorney before he was appointed chairman of the SEC. Separately, SEC Commissioner Isaac Hunt elaborated on the need for reforms of credit agencies. He told the House Financial Services Committee the SEC believes, "it is an appropriate time and in the public interest to re-examine the role of rating agencies in the U.S. securities markets, and to conduct a public examination of the potential need for greater regulation in this area."