Can accountants regulate themselves, or is some form of oversight needed to prevent future instances of illegal payments and corporate slush funds being kept off the books of many corporations?

That was the operative question during three days of hearings before the House Subcommittee on Oversight and Investigations.

"There are over 25 million individual investors in this country's publicly-held corporations who rely heavily on independent accountants to ensure that corporate financial statements are accurate and truthful," said subcommittee Chairman Rep. John Moss, (D-Calif.), in his remarks opening the hearings last week.

Moss said the public was "painfully aware" of the reports of illegal payments and slush funds which were kept off the books "or artfully concealed under the rubric of 'generally accepted accounting principles.'"

In seeking to restore public confidence in the fairness of the securities markets, Moss said, "The question now is whether the American Institute of Certified Public Accountants' proposals are capable of insuring integrity and competition in the accounting profession. If we find they are not, I will not hesitate to introduce the necessary legislation."

AICPA is a professional association of the accounting industry with 135,000 certified public accountants as members. It has served as an industry self-regulatory body, although as AICPA chairman Stanley Scott testified Tuesday:

"I will not question that in the past our capacity to impose disciplinary sanctions has not been fully satisfactory in the eyes of our critics."

But, Scott said, legislation is not needed now. He said the Securities and Exchange Commission has been "particularly in recent years, has been rigorous in its pursuit of wrongdoing in the profession."

He pointed out that the SEC has brought 124 enforcement actions against accountants between January 1974 and May 1977.

Scott also said that AICPA is setting up another layer of discipline called a "Public Oversight Board." It will be "made up of five nationally famed and universally respoected persons." The new board, added to existing restraints, "makes legislation unnecessary," Scott said.

According to Walter E. Hanson, chairman of the AICPA's SEC Practice Section Executive Committee, "The public oversight board is responsible to publish periodic reports on the results of its oversight activities and to fully inform the SEC and Congress."

Harvey Kapnick, president of Arthur Anderson & Co., also called for industry self-regulation rather than legislative action. "I believe that federal regulation would destroy the character and, ironically, the usefulness of public accounting," he said.

He said increased scrutiny by Washington has helped the accounting profession to move "toward overdue reform . . . the profession has taken corrective actions it would not otherwise have taken."

Sen. Charles Percy, (R-Ill.), said he supports the creation of "independent audit committees composed of outside directors," in all publicly-owned corporations. He said an audit committee should be a condition for being audited by an independent outside auditor.