In an abrupt about-face, Rep. Michael Oxley, the sponsor of the House bill on accounting reform, and other influential lawmakers pledged to reach a compromise agreement with the Senate bill by July 26, 2002. This landmark legislation could be the biggest milestone ever in the history of the accounting profession, and positions on the differences between the House and Senate accounting reform bills appear to be changing by the minute.
Initially, the House bill was supported by big accounting firms and the American Institute of CPAs (AICPA), while the Senate bill was labeled a "de facto government takeover" of the profession. AICPA now says both the Senate and the House bills "provide the framework for constructive reform." Similarly, only a few days ago, Rep. Oxley was saying the Senate bill has "major flaws" and calling for a "cooling off" period. Now, he says the Senate and House bills are mostly "very, very similar." ("In a Shift, Republicans Pledge to Pass Accounting Bill," New York Times, July 18, 2002.) Skeptics say this is all just lip service, and accounting firms are actively lobbying to kill the Senate bill.
President Bush is tiptoeing through the controversy, saying both bills are "tough" -- a statement that met with a searing editorial from the Washington Post. The Post points out this is like saying America's army is tough and so is Belgium's. Examples of major differences between the Senate and House bills, as described in the Post editorial:
- The Senate creates a robust oversight board for auditors; the House offers the pretense of one.
- The Senate gives the new board an independent financial base and power to compel evidence from auditors; the House leaves these details fuzzy.
- The Senate authorizes the Securities and Exchange Commission (SEC) to appoint the board; the House restricts the SEC's role to blessing private efforts to assemble a board – an effort that would doubtless be led by the accounting lobby.
- The Senate gives the board the power to write auditing standards; the House does not.
- The Senate bill limits more kinds of non-audit services that can be provided to audit clients and requires approval of other services by audit committees. The House makes a show of restricting a shorter list of services, but then says that the SEC should do whatever it wants on this issue.
- The Senate creates a new source of funding for the Financial Accounting Standards Board; the House does not.
Earlier this week, the House rushed through a bill containing harsher penalties for corporate executives involved in accounting irregularities. But the media quickly pointed out that these are largely cosmetic changes, at least without a major overhaul in the way judges mete out sentences, since studies show convicted executives do little jail time.
A summary of the key provisions of the Senate bill as it goes into conference discussions is available on AICPA's Web site.