The Securities and Exchange Commission, the US’s chief financial regulator, has issued its blueprint for the reform of the way the accountancy industry is supervised, stating that it represented a major step towards restoring investor confidence, shattered by recent scandals.
The Securities and Exchange Commission’s plan responds to the pressure for sweeping changes in US corporate governance and accounting practices following such crises as Enron, Tyco, Xerox, and Andersen. The public displeasure at such incidents has also galvanised Congress into action with a degree of bipartisanship.
The SEC has said that its plan for a new regulator, called the Public Accountability Board (PAB) is a milestone in the agency’s history, arising from a deep conviction that … immediate action was necessary.
The plan features some marked differences from plans in motion in both the US Senate and the House of Representatives. The principal difference is that the SEC’s model does not favor the strict limitations on the provision of consultancy services by auditors advocated by some senior Senate Democrats, inspired by elements of Andersen’s involvement in the Enron case. Andersen, recently found guilty of obstruction of justice, had taken millions in consultancy fees from Enron whilst also offering audit services. Such a dual role, as was shown by the case, can result in conflicts of interest.
Although the remaining major accountancy firms are making moves to separate their lucrative IT consulting operations from their audit practice, they still wish to offer a variety of non-audit services to clients.
The plan will be in place by the end of the year, unless the US Congress succeeds in passing legislation that would supersede it. The SEC’s framework is to be detailed in a 200-page proposal, available imminently, and is now subject to a 60-day period of public comment, after which revisions may be made.
The SEC’s proposals have come in for criticism, despite the insistence of Harvey Pitt, its chairman, that they send a clear message that the age of self-regulation in the accounting industry is at an end.
Critics argue that the board will still be vulnerable to becoming a captive of the accounting industry. Although six of the nine board members would have to come from outside the accounting profession, none would be direct appointees of the SEC or another government agency. The positions would be open to public-spirited individuals.
The SEC plan’s public debut follows the announcement by the Conference Board, the New York-based business research organization, that it would be launching a public commission to look at the relationship between auditors and accountants, as well as issues including executive compensation. The commission will consist of academics, money managers, and former executives and regulators.