S. 2673 - Public Company Accounting Reform and
Investor Protection Act of 2002
(Sen. Sarbanes (D) Maryland)
Administration supports the goals of S. 2673, particularly the need
to improve the quality of independent audits and financial reporting
and to ensure meaningful accountability by executives of public
a result of the President's call to action in his Ten-Point Plan
to Improve Corporate Responsibility and Protect America's Shareholders,
the Securities and Exchange Commission (SEC) is pursuing far-reaching
reforms that will result in the most significant changes in corporate
behavior in decades. In this context, the Administration supports
legislation consistent with the Ten-Point Plan. The Administration
believes that S. 2673 needs to be improved in certain important
respects to meet this standard.
2673 does not include the key legislative action that the President
called for in the Ten-Point Plan. The Senate bill should
provide the SEC with the administrative authority to bar individuals
found to have engaged in serious misconduct from serving as officers
and directors of any public company. The SEC needs this new authority
to punish those that have committed serious misconduct and proven
themselves unworthy of serving the best interests of shareholders.
S. 2673 provides a far weaker remedy for wrongdoing. It would continue
to require the SEC to expend significant time and resources in order
to attempt to gain similar relief in the Federal courts.
Administration is also concerned about provisions of S. 2673 that
purport to assign significant governmental authority to a new regulatory
board without clear definition of the authority, clear control of
the exercise of that authority by responsible officers of the government,
and appropriate confidentiality to the protect the rights of Americans.
Administration believes that a two-tiered regulatory framework is
necessary to protect investors. As recently promulgated by the SEC,
newly-established independent accounting oversight board should
set, oversee and enforce professional audit, quality control and
ethics standards. The Administration believes that the SEC should
not delegate the responsibility to investigate and enforce violations
of the securities laws to an accounting board. S. 2673 would create
duplicative and competing authority between the board and the SEC,
jeopardizing rigorous enforcement of legal and professional standards.
The Administration believes that clearer lines of authority are
necessary to ensure that the board and SEC are each accountable.
SEC should fully supervise the new regulatory board. The Administration
believes that meaningful SEC oversight is critical to maximize the
benefits of complementary regulation, and to ensure fairness and
efficiency in the board's regulation of the accounting profession.
S. 2673 should be revised so that all significant board powers are
subject to review and modification by the SEC. The Administration
believes that the bill should be clarified to ensure that the SEC
is able to monitor the board's activities as it deems necessary,
including in the areas of auditor registration, rule-making, inspections
and disciplinary proceedings.
regulatory board should maintain appropriate confidentiality procedures
for information obtained during inspections and investigations relating
to the conduct of accounting firms. The Administration believes
that the confidentiality provisions of S. 2673 should be clarified
to ensure that information gathered during the course of board investigations
is subject to no less stringent confidentiality protections than
if the information were gathered directly by the SEC. The construct
of S. 2763 threatens to result in an uneven, inequitable distribution
of disclosures and penalties for similar conduct.
the Administration is concerned that the bill rigidly defines accounting
services boundaries by statute without reference to the size and
needs of public companies in a rapidly changing marketplace.
Administration looks forward to expeditious Senate consideration
S. 2763 so that Congress, working with the Administration, can
produce a final bill to reform corporate disclosure and accountability
practices this year.