Law-Makers Draft Toughest Accounting Reform Bill Yet
Among other things, CIPA would:
- Create a Public Accountability Board with a 7-member majority selected from the public and the remaining 6 members drawn from groups representing institutional investors and pension funds.
- Empower the Board to conduct reviews of audits and audit firms, institute disciplinary actions and set standards for quality control of audits, auditor independence, and ethics.
- Impose tougher legal penalties on auditors by restoring joint and several liability in certain circumstances and restoring the aiding and abetting liability for accountants and outside professionals.
- Require the SEC to review more filings more systematically based on a risk-rating system that uses analytics (such as price-earnings ratios) to determine the frequency of reviews.
- Restrict auditors from providing a list of specified nonaudit services and require audit committee approval of any nonaudit services not listed in the bill, such as tax services.
- Require a 4-year rotation of auditors, with the possibility of one 4-year extension, if approved by the Public Accounting Regulatory Board.
- Require audit committees to meet quarterly with auditors and have an opportunity to do so outside the presence of management.
- Require a 2-year cooling off period for certain former auditor employees before they could work for an audit client.
- Prohibit directors from providing consulting services to the companies on whose boards they sit.
- Double the resources for SEC’s Division of Enforcement, Corporation Finance, and Office of the Chief Accountant.
- Set restrictions on security analysts to prevent conflicts of interest.
In introducing the bill, Representative John LaFalce said , the reforms are not "cosmetic" and do not "paper over the problem." Georgetown University law professor Donald Langevoort told  Reuters, "If it were just the little guy who got trounced [by the Enron collapse], we would simply get cosmetic changes. But this has hurt more than the little guy."