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The collapse of Enron Corp. has turned a political spotlight on accounting standards and the regulation of accountants. This is not necessarily a good development since the politicization of accounting principles and influence peddling in Washington by Enron and its auditor, Arthur Andersen, are part of the backdrop for the Enron scandal. Of 248 senators and House representatives serving on the 11 Congressional committees that are investigating Enron, 212 received campaign contributions from Enron or Andersen. [1]Further complicating reform is the fact that the current chairman of the Securities and Exchange Commission, Harvey L. Pitt, a lawyer, previously represented the American Institute of Certified Public Accountants (AICPA) and Big Five Accounting firms in private practice, and an interim appointee to the SEC, Cynthia A. Glassman, an economist, was previously a principal at Ernst & Young. [2]Although the financial press has insinuated that this makes reform questionable, if there ever was a Commission with the requisite expertise to address the problems of regulating accountants it is this Commission. Perhaps because the press is questioning everyone’s credibility and clamoring for more regulation an effective new regime will emerge from the scandal. Chairman Pitt has made a good first step in addressing the issues in his public statements of late January 2002 and his testimony before Congress recommending the creation of a new self-regulatory organization (SRO) for the accounting profession. [3]

Yet, in the view of this author, lasting reform will require legislation giving more extensive regulatory powers over standard setting and the discipline of accountants to the SEC. Congress is considering such legislation. [4]This column will summarize the current framework for the regulation of accounting and auditing and propose that a new self-regulatory structure, based on a model similar to that for securities industry SROs be established. Key issues to be resolved in creating any new SRO structure are how the SRO will be funded, the composition of its board and how it will be chosen, the nature and extent of SEC oversight and the investigative powers of any disciplinary body.

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