President's Accounting Reform Plan Gets Mixed Reviews
On March 8, 2002, President George Bush introduced his ten-point plan to improve corporate responsibility and protect America's shareholders. For the most part, the plan endorses reforms already suggested by the Securities and Exchange Commission (SEC). Reactions were mixed. Some, including the Business Roundtable, think it is a good plan. Others think it doesn't go far enough. The latter include Senate lawmakers Chris Dodd and Jon Corzine, who have introduced the Investor Confidence in Public Accounting Act of 2002.
The President's ten points:
- Each investor should have quarterly access to the information needed to judge a firm's financial performance, condition, and risks.
- Each investor should have prompt access to critical information.
- CEOs should personally vouch for the veracity, timeliness, and fairness of their companies' public disclosures, including their financial statements.
- CEOs or other officers should not be allowed to profit from erroneous financial statements.
- CEOs or other officers who clearly abuse their power should lose their right to serve in any corporate leadership positions.
- Corporate leaders should be required to tell the public promptly whenever they buy or sell company stock for personal gain.
- Investors should have complete confidence in the independence and integrity of companies' auditors.
- An independent regulatory board should ensure that the accounting profession is held to the highest ethical standards.
- The authors of accounting standards must be responsive to the needs of investors.
- Firms' accounting systems should be compared with best practices, not simply against minimum standards.
The President's plan drew praise from the Business Roundtable, which represents CEOs at 150 of the largest U.S. companies, and Financial Executives International, a membership association representing thousands of corporate financial executives. Former SEC Chief Accountant Lynn Turner said it would help accountants make the right decisions and resist pressures to hide debts and exaggerate earnings. The chief critics were lawmakers who had introduced tougher legislation. "We welcome his involvement in this," Sen. Dodd told the Wall Street Journal as he unveiled accounting legislation that went well beyond Mr. Bush's proposals. But, he added, "it still seems to come up short in a number of areas." ("Bush Unveils Plan to Strengthen Accountability for Corporations," March 8, 2002)