Senate Takes Up Enron Measure

Senate legislation to tighten oversight of the accounting industry has moved closer to a vote by the full Senate after months of lying dormant amid heavy industry lobbying against it.

The bill, a compromise between Republicans and majority Democrats pushing a stricter measure, cleared the Senate Banking Committee on a 17-4 vote Tuesday, three days after Enron auditor Arthur Andersen was convicted of obstructing justice.

It also would restrict the consulting work accountants can do for companies they audit and is more stringent than a measure passed by the GOP-led House in April in the aftermath of Enron's collapse.

Both bills would create a new board to oversee the accounting industry and discipline auditors, replacing the current system in which the industry largely polices itself.

The Senate version gives the new Public Company Accounting Oversight Board authority to establish auditing and ethics rules. Two members would have to be accountants; the other three must not have worked in the accounting industry.

All five members would be appointed by the Securities and Exchange Commission — which would oversee the new board — in consultation with the Treasury Department and the Federal Reserve.

The Senate bill also would require the SEC to impose new rules on financial analysts to prevent conflicts of interest. The rules go further than those recently adopted by the market watchdog agency.

The bill was endorsed by consumer groups, labor unions, former Federal Reserve Chairman Paul Volcker, who was hired by Andersen in February to make internal reforms, and former SEC Chairman Arthur Levitt, who battled the accounting industry over auditors' independence from client companies.

"It appears that this is a win for consumers," Frank Torres, legislative counsel for Consumers Union, said after the vote. "This bill would definitely fix some of the accounting problems that we've seen crop up ... over the last six months."

It had been bottled up for months as the accounting industry and other financial industry groups lobbied against it and Sen. Phil Gramm of Texas, the committee's senior Republican, opposed it.

But as nearly every day brings new revelations of corporate wrongdoing, accounting abuses and unethical dealing, shaking investors' confidence in the market, the panel rebuffed Gramm's less restrictive proposal and sent the tougher legislation to the full Senate.

"I think we face a very fundamental choice," said committee chairman Sen. Paul Sarbanes, D-Md., who worked out the compromise with Sen. Mike Enzi, R-Wyo. If Congress doesn't enact effective accounting legislation this year, he warned, "We may face the historical verdict" of voters in the fall elections.

The SEC, meanwhile, is scheduled to propose Thursday an accounting oversight board, with at least six of its nine members to come from outside the accounting industry. The board will have a range of disciplinary sanctions available.

The agency has been instituting a number of rule changes proposed by President Bush in early March, as the Enron controversy threatened to inflict political damage on the White House. Last week, for example, the SEC moved closer to requiring faster and broader disclosure of company changes and making chief executive officers personally vouch for the accuracy of their companies' financial reports.

"We have worked closely with the members of the Senate Banking Committee in providing technical assistance in the formulation of their proposals, and we expect to continue to do so," SEC Chairman Harvey Pitt said in a statement Tuesday. "At the same time, we will pursue our regulatory proposals so that the public can be assured that a new, unprecedented regulatory regime for the oversight of the accounting profession will be in place before the end of the year, even if legislation is not enacted by that time."

Compared with the House version, the Senate bill restricts a much wider range of consulting and other non-auditing services that accounting firms can provide to their audit clients, including bookkeeping, financial systems design and human resources and legal services. Accountants would be allowed to provide tax services if the company's audit committee gave its approval.

Critics of current practices say some accountants have become too cozy with the companies they audit, threatening the integrity of financial reports and undermining investor confidence.

Andersen received about $27 million a year in consulting fees from Enron on top of a similar amount in auditing fees.