U.S. Chamber Asks Congress for Softening of Rule on Auditing
Monday, January 23, 2006
The U.S. Chamber of Commerce is asking the federal government to soften a rule adopted after financial scandals that accounting firms failed to expose at Enron Corp., WorldCom Inc., Freddie Mac and other major U.S. companies.
The chamber, which lobbies for businesses large and small, wants the Securities and Exchange Commission to allow accounting firms to perform audits for any company within a year of having provided consulting or other services for that company.
The current rule bars a company from hiring as its auditor any accounting firm that has performed other services for it within five years. The SEC adopted the rule three years ago as required by the Sarbanes-Oxley Act, which Congress passed to tighten corporate accountability and make it harder for companies to mislead investors about corporate financial health.
The chamber makes its request in a policy paper it will release publicly today and circulated to some people last week. It is the group's latest effort to weaken some provisions of Sarbanes-Oxley, which it says has added burdensome and costly business regulations.
Supporters of Sarbanes-Oxley say a waiting period of a year or less could put auditors in the position of reviewing their own work and create conflicts of interest that the law was intended to prevent.
In its paper, the chamber also asks Congress to set clear guidelines on when the Justice Department can bring criminal charges against companies. The clarification is needed to "rein in" the department, whose successful prosecution of the accounting firm Arthur Andersen LLP put the company out of business and "led directly to severe job dislocations for 28,000 people," the paper says.
Uncertainty about the circumstances under which accounting firms can be indicted has raised the cost of their liability insurance, according to the paper, written by David C. Chavern, a chamber vice president. That has imposed a big barrier to new firms entering the field, he wrote.
The Justice Department recently dropped its case against Andersen after the Supreme Court reversed the conviction in May. The court ruled unanimously that jury instructions from the trial judge were too broad and allowed jurors to find the company guilty even if its officials did not intend to break the law.
The chamber's paper also calls on the SEC, the Public Company Accounting Oversight Board -- an audit review panel established under Sarbanes-Oxley -- and other government agencies to promote creation of large accounting firms that could compete with the four companies that dominate the business. That would give companies more choices when hiring firms to review their financial statements and, in the process, be better for the nation's economy, the paper says.
SEC spokesman John Nester said the agency would not comment on the chamber's requests because it has not seen the paper. In December, SEC Chairman Christopher Cox said in a speech to a group of accountants that he wants to make sure that government rules don't impede competition among auditing firms.
Justice Department spokesman Bryan Sierra also would not comment because no one there has seen the chamber's paper. The department has issued clear guidance on factors it considers to determine whether to prosecute a company, he said.