Pitt says reform measures "can't wait!"

New York - With investor confidence rapidly sagging in the wake of the Enron fiasco, Securities and Exchange Commission chairman Harvey Pitt said his agency will move quickly to enact reforms to improve audit and disclosure policies.

"We are not in a position where we can afford a delay," said Pitt. "We're at a point in time now where no solutions or suggestions can be off the table."

For starters, Pitt reiterated his call for the creation of a Public Accountability Board, which would be predominately comprised of members from the public sector to ensure auditor oversight.

Pitt's cry for rapid reform comes as President George W. Bush on March 7, outlined a 10-point investor protection plan designed to improve financial disclosures and heighten accountability levels of chief executives.

Highlights of Bush's plan include: creating a regulatory board overseen by the SEC to govern the accounting industry and punish accounting firms, and mandating that chief executives and company officers return stock option awards and bonuses when their respective companies are forced to restate earnings due to fraud or mismanagement.

Pitt's call for rapid reform also comes as lawmakers investigating the aftermath of the Enron bankruptcy have crafted myriad proposals to tighten accounting reform.

Examples of such recent reform proposals coming from the Hill include: HR 3763, a bill sponsored by Rep. Michael G. Oxley (R-Ohio), which bars outside accountants from providing audit clients with internal accounting services, and S1896 from Senator Barbara Boxer (D-Calif.) prohibiting auditors from offering their clients management consulting or other services that are not related to the client audit.

Pitt repeated his urging that the Financial Accounting Standards Board expedite its standard-setting process, which has been heavily criticized for its tortoise-like pace in rulemaking. "They (FASB) need to move quickly and expeditiously. Take special purpose entities. That's an issue that has been studied for well over a decade and there are still questions."

He also said he would, from time to time, seek opinions from the American Institute of CPAs, but issued the caveat that "nobody will dictate policy to us."

Pitt noted that he was not even looking at a six-month time frame for an industry overhaul. "We need to move more rapidly than that," he said.

And with the planned dissolution of the Public Oversight Board scheduled for this March 31, Pitt acknowledged that if no governing body is in place by that time, the profession would be without oversight.

"The decision by the POB was unfortunate," he said. "But they were an organization with flaws." Meanwhile, soon-to-be former POB chairman Charles Bowsher was recently named as one of the members of the committee to oversee embattled Big Five firm Andersen.

Pitt's comments followed the first of several planned SEC-organized roundtable discussions on financial disclosure and audit oversight. Panel participants in the inaugural session included such notables as billionaire investor Warren Buffett, New York Stock Exchange chairman Dick Grasso and Deloitte & Touche chief executive James Copeland, as well as lawyers and academics.

Buffett, chairman and chief executive of Omaha, Neb.-based  Berkshire-Hathaway, said, "Owners are better suited to discipline chief executives than to have them disciplined by the courts. A chief executive should be the 'chief disclosure officer' of his or her company, because he or she determines the qualitative aspect of disclosure."

Buffett added that the MD&A section in disclosure reports should "read like a chief executive is writing to a partner who's been away for one year." He also said that it's up to a company's audit committee to be tough on the external auditors and ask hard questions.

But Buffett and the other members of the panel opposed lawmakers' proposals of rotating auditors, as statistics have indicated that the most serious failures occur within the first two years of an audit.

Grasso, chairman of the NYSE, which lists some 3,000 companies, said, "You can't legislate honesty. But investor confidence has been shaken and it has to be restored. There's a marked difference between complex and crooked information."

Joel Seligman, dean at the Washington University School of Law, emphasized that the time has come for a systematic review of the disclosure system, both the textual section as well as financials. "You need to determine just what users want to see in financial statements."

With regard to reforming auditor oversight, D&T's Copeland said that the "public must be reassured that we are making progress."

In an abbreviated replay of a speech last month at the National Press Club in Washington, Copeland called for the formation of a body resembling the National Transportation Safety Board to investigate audit failures.

However, he was severely critical of several of the recent proposals offered by lawmakers during the Enron hearings such as limiting the scope of services.

"Many of them (lawmaker proposals) are too severe and will actually take us backwards. If anyone, however, thinks that after all the reforms are completed there aren't going to be any more audit failures, they're going to be disappointed. The airline industry takes great precautions for safety, but unfortunately there are still crashes."

Several members on the audit panel pointed to the ineffectiveness of accounting self-governance at the national level.

Bill Allen, of New York University Law School, pointed out that governance at that level (national) is mostly internal in nature and, in a not-so-veiled swipe at the AICPA and the POB, he labeled their past efforts "not very well-coordinated."

Panelist Melvyn Weiss, a partner at the national law firm of Milberg Weiss Bershad Hynes & Lerach LLP, which specializes in class-action litigation, said a Public Accountability Board was not the way to go.

"The SEC is starved for resources," and noted that the commission was not in line for a big budgetary increase in 2002.

Instead, he suggested an independent government agency led by members who are appointed by the President and subject to Senate confirmation.