Jan. 17, 2002 — In a statement released today, chairman Harvey L. Pitt said there would be no role in the new regulating body for the American Institute of Certified Public Accountants (AICPA), the trade group that now regulates the profession, in reviews and discipline.
“Over the last decade or so, this country’s vaunted system of disclosure, financial reporting, corporate governance and accounting practices has shown serious signs of failing to keep up with the needs of today’s investors, our economy, and new technology that makes rapid communications not only possible but essential, Pitt said. “The latest example – a most tragic and unprecedented one – is the failure of Enron.”
The SEC is “actively and aggressively” investigating the situation surrounding the fall of Enron and Andersen’s possible role, but it is already moving forward with the next step, which is to learn how to prevent failures like this from recurring, he said.
While the U.S. disclosure and financial reporting system is well-respected, Pitt said it has needed improvement for a long time. “Its inadequacies are more visible after Enron’s failure, and the need for change cannot be ignored any longer. This is not a problem that arose overnight,” he said.
“We cannot afford a system, like the present one, that facilitates failure rather than success. Accounting firms have important public responsibilities. We have had far too many financial and accounting failures. The commission cannot, and in any event will not, tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses. Somehow, we must put a stop to a vicious cycle that has been in evidence for far too many years.”
Pitt detailed several aspects of the system that could be improved, including periodic disclosure, which he said primarily serves to avoid liability.
He suggested the following:
“- The current system of periodic disclosure should be overhauled to be more of a current disclosure.
“- Financial statements should be written in plain English.
“- Corporate governance issues and the role of Audit Committees should be reviewed.
“- Statements should provide greater consideration of the intent of MD&A, which is to give investors a view of the company through the eyes of management, on critical financial issues.
“- There should be more prompt action by the FASB, the nation’s accounting standard setter.
“- The SEC needs to improve the way they oversee our disclosure and financial reporting system.
Pitt expressed a desire to turn the existing system into a tough, no-nonsense, fully transparent disciplinary system, subject to independent leadership and governance.
He did not indicate when the changes would take effect.
For more information, visit the SEC’s web site at http://www.sec.gov/.