Hurdles are Seen for Audit Changes
The New York Times
January 24, 2002
THE LAWMAKERS
By STEPHEN LABATON
WASHINGTON, Jan. 23 —
Congress appears
reluctant to impose stricter
standards on the accounting
profession, an industry that is
among its largest political
patrons, despite public and
presidential expressions of
outrage over the failure of
auditors to warn investors of the
perilous condition of Enron
(news/quote) before they lost
tens of billions of dollars.
A day before two Congressional
committees begin a series of
hearings on the unraveling of
Enron, the role of the Arthur
Andersen auditing firm, and the
oversight by Washington, two
Democrats in the Senate and one
in the House announced today
their intent to introduce
legislation imposing new
restraints on accountants.
But no Republicans have said
they are willing to be cosponsors
of the measures, and
administration officials, who
continue to embrace a broad
deregulatory agenda, have been
critical of enlarging the role of
government in overseeing the
accounting industry. The
chairman of the Securities and
Exchange Commission said in a
speech today that his agency
should not extend its regulatory
reach in overseeing the
accounting profession, and
should rely instead on officials
from the corporate world to
monitor the auditors.
And many Democrats who have
previously supported the
industry's attempts to defeat
more stringent regulation remain
in the accountants' camp, or at
least appear publicly neutral.
Congressional aides and critics of
the current system, including
some who support the measures
introduced today, conceded that
they faced long odds despite the
scandals at Enron and Andersen.
"It is never a good bet to bet against the accounting
industry," said Barbara Roper, the director of investor
protection at the Consumer Federation of America. She
said that accountants have long enjoyed unusual
influence in Washington because of their generous
campaign contributions and their standing in lawmakers'
home districts. Still, she was optimistic that this time,
things would be different, because many lawmakers who
supported the industry will now have to make the case
that they are not in its pocket.
"If ever there was an opportunity, this is it," she said.
"There is a sense in which all of this money from the
accounting industry over the last 10 years, the tens of
millions of dollars spent on Congress, could come back to
haunt them. There are a lot of people who need to prove
that that money did not buy them off."
Senator Paul S. Sarbanes, the Maryland Democrat who
heads the banking committee, agreed that it would be
difficult to adopt significant legislation, particularly in view
of the current deregulatory climate in Washington and the
influence of the accounting industry.
"I see this as a challenge," Mr. Sarbanes said, adding that
he hoped to announce a proposal after holding a series of
hearings next month on the regulatory issues posed by
the scandal. "We've been through a period where full
regulation has been downplayed. Obviously if you don't
have appropriate regulation you have difficulty assuring
the integrity of your markets. If you can't assure the
integrity of the markets, it is a severe blow to the
economy."
Two Democrats in the Senate, Christopher J. Dodd of
Connecticut and Jon S. Corzine of New Jersey, and one
Democrat in the House, Edward J. Markey of
Massachusetts, became the first lawmakers to announce
their intentions to introduce legislation that would impose
new restraints on accountants.
Mr. Markey, who proposed a measure banning the
accounting firms from performing both accounting and
consulting services for the same client, as Andersen did
for Enron, acknowledged that he faced a tough fight
against the accounting industry.
"They are a classic 800-pound gorilla that has been cut
down to size a bit, but they are still a 500-pound gorilla
politically and this will still be a difficult political battle,"
Mr. Markey said. "The response of the status quo will be
that all of these activities were criminal to begin with and
we should more strictly enforce criminal laws rather than
adopt new restraints. It's like the N.R.A.'s argument on
guns."
The accounting firms have contributed more than $53
million since 1990 to Congressional and presidential
candidates. More than $14 million of those contributions
came in 2000, putting accountants in the same category
as more established big donors like telephone companies,
universities and the building trade unions. All of the Big
Five accounting firms appeared on the list of 20 largest
donors to President Bush's campaign in 2000.
Mr. Markey noted that it was the successful and heavy
lobbying by the industry, including Andersen, that led to
the adoption of a 1995 law that makes it more difficult for
accountants to be sued successfully by investors in
securities fraud cases.
It was not the only industry success. Two years ago, the
last time a senior official tried to toughen the accounting
rules, more than a dozen senators — many still on the
Banking Committee — opposed and ultimately killed
many of the proposals made by Arthur Levitt, then the
chairman of the Securities and Exchange Commission, to
reduce what he said were conflicts of interest at the firms.
Those who voiced concern about the proposals by Mr.
Levitt included Representative Billy Tauzin, the Louisiana
Republican overseeing tomorrow's hearing in the House,
and Representative Michael G. Oxley, the Ohio
Republican who heads the Financial Services committee.
And at least twice in the last eight years, Senator Joseph
I. Lieberman of Connecticut, who is heading the Senate
hearings on Thursday, led efforts sought by the
accounting industry to derail stricter accounting rules on
stock options.
Congressional officials today described a deep reluctance
to enlarge the powers of the federal government to protect
investors and monitor accountants.
"There is a lot of resistance for regulatory initiatives in the
Congress now, but it is an issue that is worth having a
debate on," Senator Corzine said.
The view of limiting the authority of the federal
government was repeated by Harvey L. Pitt, the chairman
of the Securities and Exchange Commission, in a speech
today in California. Mr. Pitt said he believed that "private
regulation presents major advantages, both in quality
control and discipline."
"I have mentioned cost as one reason the S.E.C. should
not have immediate and direct regulatory responsibility
for the accounting profession," Mr. Pitt said in an address
before the Securities Regulation Institute, a group of
corporate lawyers and securities experts. "But let me be
clear. My principal concern with giving government the
direct responsibility is that the process will not work as
well. It will be slower, of necessity more bound up in
process, and less flexible. The suggestion that the federal
government get in the audit business — for the S.E.C. to
employ and pay auditors to audit all public companies —
is simply not viable."
"Of one thing I am certain," he added. "People who are
unhappy with audits today will be downright despondent
if the government were to undertake the job."
nytimes.com |
