A couple of days after the Andersen guilty verdict was returned, the Senate Banking Committee basically said "enough of this crap" and approved, arguably, the strongest measures on accounting reform thus far submitted by lawmakers.

The measure, which was approved by a 17-4 margin in committee, would prohibit accounting firms from selling a variety of consulting services to audit clients, create a regulatory board composed of people outside the accounting industry, and limit the time a firm partner could review the books on a particular company.

Not surprisingly, the usual lobbying groups (e.g.: the Big Four and the American Institute of CPAs) came out against the bill, preferring instead the reform legislation offered by Rep. Michael Oxley, an Ohio Republican, whose bill is a more muted version of the one approved by the SBC.

Also, not to anyone’s surprise, a host of pro-consumer groups hailed the measure as a panacea for accounting reform and a safeguard against future Enron-Andersen fiascos.

The bill specifically prohibits accounting firms from selling eight types of consulting and other services to publicly-traded audit clients. But in what some have seen as a concession to the profession it allows the firms to offer clients tax services — contingent on the approval from the respective companies’ audit committee. It also places a five-year limit on the time a senior partner can spend on a client. Moreover, the bill also gives the Securities and Exchange Commission’s budget a much needed 66 percent boost.

Now, there are two schools of thought and perhaps even more on the SBC bill.

The first is that some pro-consulting advocate, with a better-than-average short-term memory, could say, "Hey look at Andersen, they separated their consulting unit a long time ago and see what happened." Also, historical evidence could point out the fact that the majority of audit fraud occurs within the first two years.

On the other hand, critics can point to the alarming number of financial restatements by publicly traded companies over the past three years and as evidence, show an eye-opening ratio of audit-to-consulting fees in many cases.

The SBC bill is likely to be brought up for a floor vote in September. Meanwhile, the SEC is working on its own version of a reform board.

What’s not in doubt, however is that some form of accounting reform is needed. How stringent or moderate remains to be seen. But either way, one thing is not up for debate — the profession will likely look and operate somewhat differently a year down the road.

 

 

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