Act fast, or else, Levitt says

Accountants cautioned by SEC chairman

The professions

July 11, 2000|By BLOOMBERG NEWS

NEW YORK - U.S. Securities and Exchange Commission Chairman Arthur Levitt said yesterday that accountants have been slow to develop a modern system for regulating themselves and risk legislation unless they act fast.

Levitt kicked off two days of hearings in New York about rules governing auditing of public companies. Representatives of the nation's biggest accounting firms are also testifying before the Panel on Audit Effectiveness.

`Fundamentally sound'

The panel's preliminary report concluded that the accounting profession and the quality of its corporate audits "are fundamentally sound." Nevertheless, it recommended strengthening the power of a professional supervisory group known as the Public Oversight Board, which is headed by former U.S. Comptroller General Charles Bowsher.

"If this doesn't work, the next step will be a legislative solution," said Levitt. "The industry is very primitive in its approach to developing the kind of image and maintaining the kind of public perception that I think is essential to its future."

Bowsher's board monitors rules and peer reviews to try to ensure the quality of public company audits. The panel recommended putting the Bowsher board in charge of setting standards for auditing and monitoring, as well as discipline and special reviews.

Vigilance against fraud

The Panel on Audit Effectiveness also recommended that corporate auditors be more vigilant in detecting fraud and that auditors presume that corporate management could be dishonest.

"The profession needs to address vigorously the issue of fraudulent financial reporting, including fraud in the form of illegitimate earnings management," said the panel's chairman, Shaun O'Malley, a former Price Waterhouse accounting firm chairman.

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