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SEC seeks accounting reform
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January 17, 2002: 2:22 p.m. ET
Chairman Harvey Pitt says restoring public confidence is goal No. 1.
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NEW YORK (CNN/Money) - Securities & Exchange Commission Chairman Harvey Pitt called Thursday for reform of the way accounting firms are monitored and regulated in the United States in an effort to restore public confidence in the profession in the wake of scandals involving Enron Corp. and other companies.
"This commission cannot and will not tolerate a pattern of growing restatements, audit failures, corporate failures and massive investor losses," Pitt said in a news conference. "Somehow we have got to put a stop to the vicious cycle that has now been in evidence for far too many years."
Pitt proposed the creation of a new body, composed mostly of representatives from the public sector, to oversee and discipline accounting firms, and he called for a reform of the triennial peer review process, which has been criticized "with some merit," Pitt said.
His suggestions were prompted mostly by the recent collapse of energy trader Enron and the revelations of accounting irregularities that led to it. Its auditor, Arthur Andersen, has come under intense scrutiny for failing to discover or disclose problems with Enron's books that hid massive debt and helped the company avoid paying taxes.
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SEC Chairman Harvey Pitt | |
Enron's shares lost almost all their value as the disclosures came to light, the company filed for bankruptcy and investor confidence in the accuracy of companies' financial disclosures was shaken.
"I place restoring the public's confidence in the auditing profession to be immediate goal number one," Pitt said.
Click here for more on the Enron collapse
Pitt said he and others in the SEC were still trying to work out the details of the new oversight group, which would have the power to compel testimony and the production of documents, and were investigating the circumstances of Enron's collapse.
Despite Pitt's proposals, Sen. Jon Corzine, D - New Jersey, told CNNfn's The Money Gang that the SEC should be policing the accounting firms. (WAV 597KB) (AIFF 597KB).
Pitt did say he thought the SEC should have oversight of the new body's decisions and actions.
Of particular interest to the SEC may be the actions of Andersen, which admitted to intentionally destroying Enron documents -- excepting the important "work papers" associated with an audit -- and recently fired the partner heading up its work on Enron.
Andersen's actions were only the latest in a series of stumbles by accounting firms. Andersen was recently fined $7 million by the SEC, the largest penalty ever, for irregularities connected with its work on Waste Management Inc. Other venerable firms like PricewaterhouseCoopers and Ernst & Young have also had their share of trouble. 
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