Senate Hearings Focus on Radical Accounting Reforms

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The Senate Banking, Housing, and Urban Affairs Committee has announced that its series of hearings on accounting and investor protection issues is coming to a close. The tenth and final hearing will be held on March 21, 2002, when Securities and Exchange Commission (SEC) Chairman Harvey L. Pitt will testify.

The Senate bill attracting the most attention is the Investor Confidence in Public Accounting Act of 2002. This bill is also one of the most radical reform efforts. In announcing the proposed legislation, co-sponsors Senators Chris Dodd and Jon Corzine said it is designed to address longstanding problems with the financial reporting system and in the accounting profession. Among other things, it would:

  • Create an independent public accounting board, require accounting firms to be registered with the board, and authorize the board to set and enforce auditing standards for registered firms.
  • Prohibit auditors from providing certain non-audit services, including tax services, - unless the services are approved in advance by the audit committee.
  • Address the so-called “revolving door” by prohibiting accounting firms from performing audit services for an issuer, if the controller, chief financial officer or other individual in a management capacity for the issuer has worked for the accounting firm within the previous two years.
  • Change the funding of the Financial Accounting Standards Board by requiring whatever accounting standard-setting body is selected by the SEC to be funded solely by fees and charges assessed against each issuer of registered securities.
  • Make it illegal for officers, directors or others affiliated with an issuer to take any action to willfully and improperly influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the issuer's financial statements.
  • Require faster electronic filing of disclosures about insider trading, along with additional financial disclosures of transactions and relationships likely to materially affect various aspects of the issuer's financial health, such as its liquidity or the availability of capital resources, credit ratings, or stock price.
  • Double the size of the SEC accounting staff.

Read the section-by-section summary of the Investor Confidence in Public Accounting Act.

-Rosemary Schlank

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