WASHINGTON (HedgeWorld.com)–Both houses of Congress overwhelmingly passed an act to change the way financial accounting and auditing work in the United States.
The House acted first, July 25, approving the result of this week’s conference committee. The Senate first appeared ready to defer action until next week, then changed its institutional mind and passed the bill immediately. President George Bush has promised to sign it.
The resulting bill creates an oversight board for the accounting industry; establishes auditor independence standards in order to avoid auditor/consultant conflicts of interest; requires that a corporation’s chief executive certify the accuracy of its financial statements; offers corporate whistleblowers enhanced protection against retaliation; gives the new oversight board, as well as the Financial Accounting Standards Board, a key role in setting the fees by which each will be supported (in the expectation that this will enhance their independence); makes civil penalties exacted by the Securities and Exchange Commission available to the victims of securities fraud; requires more rapid disclosure of key financial information; and orders the SEC to study how best to separate stock analyst research from compensation.
The new Public Company Accounting Oversight Board will have five members, each of whom will have a five year term, except for the initial members, whose terms will vary in length so that terms will subsequently be staggered.
The House vote was 423 to 3. The three dissenters were Reps. Michael Collins (R-Ga.), Jeff Flake (R-Ariz.) and Ron Paul (R-Texas).
The Senate’s vote was even more lopsided, 99 to 0. Senator Jesse Helms (R-N.C.) did not vote, due to his failing health. Although Sen. Phil Gramm (R-Texas), ranking member of the Senate Banking Committee, earlier indicated he would vote against this bill, he changed his mind and supported it, making the observation that in the present scandal-influenced environment a far worse bill might have passed, and this one will on the whole improve matters more than make them worse.