From Wall Street To Capitol Hill: Corporate Scandals Bring Calls For Reform
(RIVERWOODS, ILL., July 10, 2002) – President George Bush on July
9 set forth his response to recent corporate scandals that have called
into question the validity of balance sheets, the adequacy of
financial reporting laws and the integrity of corporate governance.
But his main proposals address only a portion of the problems that
have dragged down the likes of Enron and WorldCom, according to CCH
INCORPORATED (CCH), a leading provider of securities and business law
information, software and services. A comprehensive approach also will
require action by the Securities and Exchange Commission (SEC) and
both houses of Congress.
Speaking on Wall Street, the President offered a multi-faceted
approach intended to "end the days of cooking the books, shading
the truth and breaking our laws." Bush placed special emphasis on
solutions that highlighted his role as the nation’s chief
"The President proposed tougher penalties for existing crimes,
announced he was creating a Corporate Fraud Task Force in the Justice
Department and called for more enforcement personnel at the SEC,"
noted James Hamilton, JD, senior securities law analyst for CCH.
"He also emphasized the ‘bully pulpit’ function of the
presidency by calling on others – Congress, the exchanges, the SEC
and especially corporate leaders – to do their part to restore
confidence in the nation's financial markets," Hamilton noted.
While he touched on a variety of topics, from insider trading to
protection for participants in 401(k) plans, Bush had little to say
about the accounting profession, which has been in the spotlight since
the disclosures that lead to Enron’s downfall.
"Just how accountancy will be regulated is a major point of
contention between rival financial services reform bills in the House
and Senate," Hamilton observed, "and the spotlight now
shifts to how differing positions in those bills will be
Things Are About to Heat Up on the Hill
The House of Representatives passed a bill creating an accounting
oversight board with the authority to certify accountants auditing
corporate financial statements and to punish accountants who violate
securities laws, standards of ethics, competency or independence.
In the Senate, Paul Sarbanes (D-MD) has introduced a bill that
would also create a new oversight board for the accounting industry,
but one seen as having more independence from the accounting
establishment and greater enforcement powers. Sarbanes’ bill also
requires reporting on loans made by a company to its executives – a
subject that the President touched on in New York.
"Various amendments will be offered on the Senate floor that
would take the Sarbanes bill even further," Hamilton noted.
"Some senators, for example, want to require companies to count
stock options as current expenses. This would make the use of options
for executive compensation less attractive, and in theory make it less
likely that top executives will manipulate earnings results in order
to cash in on options."
Senate action on the Sarbanes bill is expected shortly, and then
the center of attention will be a House-Senate conference committee.
"That’s where the decisive action will come," said
Hamilton. "Not only will the conferees be ironing out the
differences between the two bills, but they undoubtedly will get input
from the administration on just what the President will support. There
are sure to be some sharp differences of opinion, but also a lot of
pressure to come up with a set of measures that can be passed in both
houses and signed into law."
About CCH INCORPORATED
CCH INCORPORATED, founded in 1913, has served four generations of
business professionals and their clients. The company produces
approximately 700 print and electronic products for securities, tax,
legal, banking, securities, human resources, health care and small
business markets. CCH is a wholly owned subsidiary of Wolters Kluwer
North America. The CCH web site can be accessed at cch.com.
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