On April 22, 2002, as the Financial Accounting Standards Board (FASB) prepared for a new chairman and the House of Representatives prepared for a vote on its leading accounting reform bill, Senator Carl Levin unveiled the Shareholders' Bill of Rights. Tougher and more comprehensive than the House bill, this new Senate bill will address audit reforms, accounting standard-setting, executive stock options, and more.
Senator Levin is chairman of the Senate Permanent Subcommittee on Investigations. A summary of his proposed legislation includes the following:
- Establishment of an independent source of funding for the non-governmental body authorized by the Securities and Exchange Commission (SEC) to issue accounting standards (currently the FASB).
- A requirement that FASB must resolve matters promptly, with due process and public participation. For any matter unresolved after two years, the SEC must require action by a certain date - or resolve the matter itself.
- Restrictions against an audit firm auditing its own work and providing non-auditing services to a company during the course of its audit contract and for two years afterward.
- A requirement that audit committees of publicly traded companies must ensure their companies are not engaged in novel or aggressive accounting practices which, if invalidated, would likely subject the company to material negative financial consequences.
- A requirement that shareholders approve any stock option compensation plan that will not be shown on the company's financial statements as an expense.
- A provision that would bar companies from providing preferential treatment on compensation benefits to company directors or officers compared to other employees or creditors of the company.
The subcommittee plans to hold a hearing on May 7, 2002. The witnesses will include selected members of the Enron board of directors who will be asked to testify about the board's actions in light of the Enron collapse.