Harvey L. Pitt, chairman of the Securities and Exchange Commission, spoke in a press conference Thursday, ready to take action to preserve the integrity of the tarnished accounting profession. "We have taken the initiative to begin the process of restructuring the regulatory process that governs the accounting profession," he stated.

"The Commission, not the profession, must take a leading role in protecting the public interest," he continued.

A new regulatory system was outlined focusing on two primary components - quality control and discipline:

• Quality control. A new oversight panel will monitor the way accounting firms conduct their audits. This panel will be dominated by public members and will oversee a permanent quality control staff composed of knowledgeable individuals who are not members of an accounting firm. The body "will have to have real teeth" said Chairman Pitt, as well as the power to take testimony and access corporate documents and data.
• Discipline. The new public accountability board will also oversee disciplinary actions. Private sector regulatory bodies will continue to set standards for professional ethics and confidentiality, while the public accountability board will oversee violations of laws by accounting firms. The new body will be empowered to perform investigations, bring disciplinary proceedings, publicize results, and restrict firms that violate laws or fail to achieve certain ethical or confidence standards from auditing public companies.

"In what I am contemplating, the AICPA would have no role in the disciplinary and quality review portions" of the new public regulatory body, Mr. Pitt said. He went on to describe that the AICPA will continue its role in ethics oversight, and indicated that a vast body of knowledge has been built by the AICPA on the disciplinary process during its stewardship of this role that the SEC and the public can benefit from. Mr. Pitt welcomed the profession's willingness to work with the SEC to bring about meaningful reform.

"Accounting firms have critical public responsibilities and there have been far too many financial and accounting failures. This commission cannot and will not tolerate this pattern of growing misstatements, audit failures, corporate failures and then massive investor losses."

The disciplinary aspect of this new body would perform investigations and address violations of the law, subject to SEC oversight. The quality control aspect of this body would include a reform of the current peer review process to provide for more frequent monitoring by a permanent Quality Control staff not affiliated with any accounting firm.

Specific SEC recommendations for overhauling the system and restoring confidence in the integrity of the accounting function include the following:

• A change from the current system of periodic disclosure to one of current disclosure
• Review of corporate governance issues and the role of audit committees
• Greater Management Discussion and Analysis (MD&A) disclosure that will give investors a view of a company through the eyes of management. The SEC is preparing to issue a statement on MD&A disclosure.
• More prompt action by the Financial Accounting Standards Board
• Improved methods for improving the way the SEC oversees its disclosure and financial reporting system
• Reform of the regulation of the accounting profession

The AICPA sent an e-mail to its membership prior to the press conference asserting its commitment to work with the SEC in whatever capacity it can to bring about the needed reform.

You can read the complete text of Mr. Pitt's speech, listen to the one hour long press conference, or watch the press conference which is archived on C-Span's web site.