SEC Chief Pushes for Proposed Audit
Panel Reform: Chairman Harvey Pitt reiterates opposition
to excluding accounting industry members from a new oversight board
March 22, 2002
Los Angeles Times
By NICK ANDERSON, TIMES STAFF WRITER
WASHINGTON -- The nation's top securities
regulator Thursday sought to convince Congress
that a proposed new accounting board would have
the authority to improve industry oversight.
But Securities and Exchange Commission Chairman
Harvey Pitt, testifying before a Senate committee,
stood by his previous proposal that the new board
include members from the accounting profession.
Pitt said the industry members would be a minority
on the board, but rival proposals call for a board
with no industry ties. The Public Oversight Board,
which now helps oversee the profession but is
disbanding at the end of the month in protest of
Pitt's plan, has called for the establishment of a new
watchdog panel that would be totally independent of the industry. "We think it
ill-advised to exclude them completely," Pitt said in written testimony to
Congress.
He said his proposed Public Accountability Board would undertake
quality-control reviews to ensure that audits meet high professional standards.
Board members would initially be selected by the SEC, and those added later
would be subject to SEC review.
The board would be funded by fees paid by auditing firms and by public
companies. By contrast, the current Public Oversight Board is funded by the
American Institute of Certified Public Accountants.
Among other disciplinary powers, the new panel would have the authority to
force a company to change auditors, Pitt said.
The SEC chairman's appearance before the Senate Committee on Banking,
Housing and Urban Affairs comes at a critical moment for the accounting
profession. Last week, federal prosecutors announced a criminal indictment of
accounting firm Andersen on a charge of obstruction of justice connected to the
shredding of Enron Corp.-related documents.
Lawmakers are urging Pitt to move as fast as possible to restore public and
investor confidence in a profession that is one of the cornerstones of the
financial markets--certified public accountants.
"The 'P' in CPA was put there for a purpose," Sen. Christopher J. Dodd
(D-Conn.) told Pitt.
Dodd quizzed Pitt about a proposal to limit the movement of independent
auditors into jobs at client companies--a practice he suggested could create
conflicts.
"I'm troubled about the so-called revolving door," Pitt said, but he added it is
"impossible for any of us to write a rule that will deal with every set of
circumstances."
Pitt again urged Congress to avoid proposals to ban accounting firms from
offering consulting services to publicly held companies they audit. "To create an
'audit-only' firm does not guarantee an 'audit failure-free' future," he said.
Andersen was both consultant and auditor for Enron at the same time, an
arrangement that critics say led to a conflict of interest that ultimately may have
delayed the timely disclosure of the energy trader's financial weakness.
Pitt said that a blanket ban on consulting by auditors would backfire, but he
acknowledged some limits would be useful. The proliferation of
auditor-consultants "can, and in a number of situations clearly does, create
conflicts that we ought to eliminate," he said.
Also Thursday, a Senate panel said it will subpoena more records from Enron
and Andersen to document contacts the two firms had with the White House
and federal agencies. The Governmental Affairs Committee will send the
subpoenas to both companies and to 27 current and former members of
Enron's board since 1992, Leslie Phillips, spokeswoman for Chairman Joseph
Lieberman, said.
latimes.com
Bloomberg News was used in compiling this report. |
