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A Times Editorial
© St. Petersburg Times, published June 24, 2002
Anyone who has money invested in the stock market should welcome the reforms passed Tuesday by the Senate Banking Committee. The legislation would restore some faith in the accounting industry and give investors a truer picture of the state of America's publicly traded companies. These protections are enormously important to everyone who works, saves or thinks about retirement. Only bold action by the government can prevent the next Enron corporate accounting scandal.
The Senate proposal is far better than a weaker version in the House. It's also stronger than the reforms put forward Thursday by the Securities and Exchange Commission. The bill would replace the industry's self-policing system with a new oversight board, give that board authority to set professional standards and limit the kind of consulting work that accounting firms could provide their auditing clients. There is no greater challenge than removing the incentive for auditors to push the envelope. Taking the disciplinary function away from the industry and raising the bar on professional behavior are essential components of any long-term fix.
The Senate bill throws a wide net over the problem. Senior audit partners would rotate responsibility for a company's books. Analysts and investment bankers would be barred from interfering with each other's job, and senior officers would be held more responsible when their firms fudged on the finances. There is no legislative way to prevent deceit, but increasing the risk that auditors face at least underscores the professional obligation certified public accountants have to society.
These rules are the minimum the public expects. There is no public sympathy for keeping a regulatory process that serves the very people who abuse their public trust. The conviction this month of the auditors, Arthur Andersen, for obstructing justice in the Enron case is a measure of how far the industry needs to change to recapture the confidence of American investors. But accountants still haven't gotten the message. They favor the forgiving House "reform" plan, which leaves most major decisions to the SEC, which itself had resisted a serious response.
The Bush administration came into office promising to raise ethical standards, and one of its earliest initiatives was a plan to invest a portion of Social Security in stocks. Neither of these goals will be advanced by embracing the House or SEC proposals. Strong and clear ethical rules codified into law are the way to restore investor confidence. With fresh examples of corporate chicanery emerging every day, this is the wrong time to add uncertainty to the market by giving accountants a pass they don't deserve.