IT BEARS the ponderous title of Public Company Accounting Reform And Investor Protection Act of 2002. But the Bill sponsored by the Senate Banking Committee chairman Paul Sarbanes, on which debate started yesterday, could be the basis for the clean up of the US auditing industry for which public opinion is clamouring.
As recently as three weeks ago, there were doubts the measure would ever make it to the Senate floor, such was the resistance from many Republicans and the potent accounting industry lobby. But the mood has been transformed by the WorldCom scandal, the latest in a string of corporate debacles stretching back to the Enron bankruptcy last December. The public wants action now, and the quietly spoken Mr Sarbanes is about to provide it.
The core of his bill is a new regulatory body for the accounting industry, with wide powers to oversee auditors, to set strict limits to their relationships with their customers, crack down on insider trading and impose new rules on stock analysts. Under the Sarbanes plan, no more than two people employed by the accounting industry would be allowed to serve on the five- man oversight board.
The bill would also: largely prevent accounting firms from providing consulting services to their customers; require the rotation of lead auditors (but not the accounting firm); and impose a ban on document shredding for seven years.
The crux, however, is the regulatory board. The US accounting industry, led by the American Institute of Certified Public Accountants (AICPA), opposes the Sarbanes proposal on the grounds that it would effectively lead to people outside the industry determining its standards.
Therein lies the biggest difference between the Senate measure and one passed by the House of Representatives on 24 April, the so- called "Oxley Bill", sponsored by Michael Oxley, the Republican Congressman who heads the House Financial Services Committee. The Oxley Bill, supported by …