SEC's Pitt Plans New Accounting Disciplinary Group (Update1)
By Neil Roland
Washington, Jan. 17 (Bloomberg) -- Securities and Exchange Commission Chairman Harvey Pitt plans a new body to police and discipline accountants, after Enron Corp.'s fall into bankruptcy has prompted investigations of its auditor, Arthur Andersen LLP.
The SEC plans to work with the American Institute of Certified Public Accountants to form a new industry policing group, under SEC oversight, that will have authority to punish accountants for incompetence and ethics violations, Pitt said. Members from the public, rather than the accounting profession, will constitute the majority of the group, AICPA said in a memo to members yesterday.
``The need for change can not be ignored any longer,'' Pitt said. ``We simply cannot afford a system like the present one that facilitates failure rather than success.''
The SEC plan follows an outcry from Congress and the White House to get tough on guaranteeing the quality of company audits after Houston's Enron, the largest energy trader, disclosed that it overstated profit by $586 million since 1997. The attention on Enron and its auditor Arthur Andersen LLP gives the SEC's newest regulatory plan a chance of success, accounting experts say.
``Pitt's proposal will be close to a slam dunk because the time is right for something like this,'' said University of Georgia accounting professor Dennis Beresford, former chairman of the Financial Accounting Standards Board. ``As a result of Enron, people, including accountants, are frantically looking to do something.''
Pitt's plan is the latest in a years-long series of federal efforts to toughen auditor oversight, which now is divided among groups such as AICPA, the Public Oversight Board, the Independence Standards Board, the Professional Ethics Oversight Committee and the Auditing Standards Board. Pitt's predecessor Arthur Levitt, for example, called for a single disciplinary group in 1999.
SEC officials have been talking with the largest U.S. accounting firms about how to police accountants since Enron last month filed for the biggest Chapter 11 bankruptcy. Andersen's role and the destruction of Enron-related documents by Andersen employees are being probed by the SEC.
Alphabet Soup
The disciplining of accountants is currently led by AICPA and the states without any SEC oversight. Other bodies in Levitt's alphabet soup of groups, the Public Oversight Board (POB), the Independence Standards Board (ISB), and AICPA's Professional Ethics Executive Committee (PEEC) also have roles in various aspects of accounting industry oversight. Since leaving the SEC last year, Levitt now is a director of Bloomberg LP, the parent of Bloomberg News.
``Our goal is comprehensive self-regulation,'' SEC spokeswoman Christi Harlan said in an interview today.
Pitt's predecessor Arthur Levitt, for example, urged accountants in 1999 to consider a single disciplinary body to replace an ``alphabet soup'' of industry oversight groups known by acronyms such as POB, ISB, and PEEC. American Institute Certified Public Accountants President Barry Melancon said a new group wasn't needed because of his industry's ``a great track record'' of policing itself.
Improving the Process
The policing group will require ``a more rigorous and continuous'' review of the largest firms' audits, the AICPA memo said.
``We are diligently working to improve the profession's peer review and disciplinary process,'' the AICPA said.
Pitt's plan also calls for the new group to set professional and ethical standards, Harlan said. The SEC plans to issue the plan for public comment, though it won't need congressional approval, she said.
Pitt's announcement is scheduled for 1:30 p.m. Washington time. The SEC chairman, a Republican who represented large accounting firms while a private-sector lawyer, will present a broad outline of the new organization, Harlan said. Details of the policing group will be worked out between the SEC and accounting executives over the new few months.
``One reason that this is certain to fly is because Pitt is viewed by the profession as someone who wants to work together with them,'' Beresford said.
Levitt, who took a more confrontational approach to accounting self-regulation, had to settle for expanding the authority of the Public Oversight Board, a peer-review group headed by Charles Bowsher. |
