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REP. DeGETTE HAILS PASSAGE OF CORPORATE
REFORM
Stock Options, Rotating of Corporate Auditors
Still Need to be Addressed
Washington, DC – Rep. Diana DeGette (D-CO) today released
the following statement on the U.S. House of Representatives’
passage of the corporate accountability plan:
Mr. Speaker: I rise in support of the conference report to
H.R. 3763, the “Public Company Accounting Reform and Investor
Protection Act.” This agreement accepts almost every
Democratic proposal contained in the “Sarbanes” bill and has
only been altered by adding increased penalties for corporate
crimes. I am pleased that the Republicans in Congress agreed
to the much stronger Democratic proposals that will reach to
the very roots of the problems in corporate America that
caused the collapse of companies like Enron, WorldCom, and
Adelphia. Unfortunately, the country will most likely continue
to see companies fall due to accounting improprieties and,
while I believe this is a strong bill, more must certainly be
done. However, the changes in our nation’s financial
accounting structure contained in this agreement will
strengthen the confidence and trust of investors and will
increase the transparency and acceptability of financial
statements.
The agreement that we are considering today is almost
identical to the Democratic proposals contained in the
“Sarbanes” legislation that passed the Senate 97-0. The fact
that the Republicans accepted the Democrats’ position
certainly shows that the Republicans in Congress are feeling
the heat over corporate accountability. After all, the
American public trusts Democrats to fix the problems in
corporate America and to increase investor confidence in the
markets.
The proposal offered by Republicans to deal with corporate
abuse was to increase penalties for corporate crime, coupled
with weak, industry-controlled standard-setting bodies. They
wanted to deal only with the “bad apples” instead of getting
to the heart of the problem. The conference committee agreed
to accept their increased penalties for crime. But, the
conference committee recognized that corporate abuses will not
end until Congress makes changes that attack the root of the
problems. So the conferees accepted the Democratic proposals
almost in their entirety.
As we have seen from the collapse of Enron and other large
corporations, auditors had guiding principles that were
extremely weak and easily ignored by accountants and corporate
management. Additionally, accounting improprieties were
purposely overlooked because the auditors became too cozy with
the companies they audited and made huge profits from
non-audit consulting services. To address these problems, this
agreement creates a new and independent accounting board that
has authority to establish auditing standards, investigate
accounting firms that conduct audits of publicly-traded
companies, and enforce their rules. The agreement also
mandates auditor independence and bans most non-audit
consulting services.
As we have seen in the past, much-needed accounting reforms
were impeded by industry officials who threatened to withhold
funding from the Financial Accounting Standards Board (FASB).
The new auditing board and the current FASB will be given an
independent funding stream to ensure that important financial
standards will not be senselessly squashed by greedy industry
executives.
The agreement also increases and strengthens corporate
governance by requiring senior executives to attest to the
accuracy of their company’s financial statements, under
penalty of law. It also requires corporate executives to repay
any compensation or profits received as a result of their
accounting trickery.
Unfortunately, this agreement overlooks some issues that
must be addressed, including expensing stock options and
mandatory auditor rotation. Stock options that are not
included on a company’s financial statements can misrepresent
the true value of a company. I am pleased that some companies
have taken it upon themselves to include employee stock
options on their financial statements and I am also pleased
that the FASB has indicated that it will move quickly on a
rule for expensing stock options. Additionally, requiring
companies to rotate their auditors is very important to ensure
that senior executives and the people auditing their companies
do not become too cozy and allow a company to get away with
accounting tricks. While these issues are not included in this
agreement, I look forward to continue working on finding ways
to deal with them.
This agreement goes to the root of the problem of corporate
abuse. It is strong and comprehensive, and will increase
investor confidence, transparency, and the strength of the
markets.
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