Speaking to an American Institute of CPAs conference, Securities and Exchange Commission Chairman Christopher Cox suggested that accounting rules need to be simplified in order to ensure that financial irregularities aren't hidden.

"The accounting scandals that our nation and the world have now mostly weathered were made possible in part by the sheer complexity of the rules," he said. "Criminal conduct could be concealed in a thicket of detail. Conformity to hundreds of technical rules became not a shield to protect investors, but a sword to be wielded against them."

In videotaped remarks before the 2005 AICPA National Conference on Current SEC and PCAOB Developments, Cox also said that the SEC is working with both the Public Company Accounting Oversight Board and the Financial Accounting Standards Board to make accounting less complex. From audits to financial reports, Cox said that the groups are looking for recommendations on how to make the rules and their application more clear, straightforward and transparent.

"Our financial reporting system is the cumulative product of pressure from different constituencies. That's one of its strengths ... But the sheer accretion of detail has led to one of the system's weaknesses -- its extreme complexity," Cox said. "Convolution is now reducing its usefulness."

Cox said that FASB is already working to assess standards in major areas where rules fail to provide transparent information; establish a single source for all GAAP material; and stem new pronouncements coming out of multiple sources.

Cox also expressed some concerned about the consolidation of the Big Four accounting firms that handle the vast majority of public company audits, and the subsequent lack of competition in the marketplace. He said that the SEC is beginning to look into ways to rewrite its rules to allow more competition for large-company auditing.

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