In what may have wide-reaching ramifications for CFOs and other finance managers, Securities and Exchange Commission Chairman Harvey Pitt today called for substantial reform of corporate disclosure, as well as the accounting profession itself. In a statement released this afternoon, Pitt addressed growing concerns over less-than-forthright financial statements, impenetrable accounting standards, and the lack of true oversight of the audit industry. “The Commission cannot, and in any event will not, tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses,” said Pitt. “Somehow, we must put a stop to a vicious cycle that has been in evidence for far too many years.”
Pitt’s solution? For starters, he wants corporations to disclose material information on an ongoing, rather than periodic basis. “Today, disclosures are made not to inform,” he asserted, “but to avoid liability.” The SEC chairman also said corporate governance–and the role of audit committees–are in need of review. In addition, he called for more prompt action by the Financial Accounting Standards Board.
Moreover, Pitt said the SEC would like to see a new regulatory body created, one that would govern the accounting industry. That body would have the power to conduct investigations and bar accountants from auditing publicly traded companies. Pitt also decried the current industry practice of peer reviews every three years. Instead, he says the new accounting regulatory body should include a quality control staff, manned by experts with no ties to specific accounting firms.
Apparently, officials at the SEC have already started discussing Pitt’s “new regulatory framework” with members of Congress. “We have taken the initiative to begin the process of restructuring the regulatory system that governs the accounting profession,” said the Commission chairman. “This system must at heart be a tough, no-nonsense, fully transparent disciplinary system, subject to independent leadership and governance.”
It must also be embraced by accountants. Considering that members of the American Institute of Certified Public Accountants voted just last week to nix a plan to create a global credential for the industry, Chairman Pitt’s vision may not sit so well with the numeric-keypad set.