ACCOUNTING REFORMS STILL NEED WORK SHERMAN SEEKS TOUGHER REGULATIONS IN FIELD.

Byline: Bill Hillburg Washington Bureau

WASHINGTON - As one of only three certified public accountants in Congress, Rep. Brad Sherman is trained to know when corporate books have been cooked.

And the Woodland Hills Democrat is not ready to give a clean audit to Congress' efforts to reform the accounting industry in the wake of the Enron and Arthur Andersen scandals.

``I guess Congress doesn't want to do very much to protect people from the next Enron,'' Sherman said last week after the Republican-controlled House overwhelmingly approved what he considered to be a weak reform bill.

But passage of the Corporate and Auditing Responsibility Act was hailed by co-sponsor Rep. Edward Royce, R-Fullerton, and President George W. Bush, who saw it as an important step in restoring public trust and investor confidence.

Sherman wound up supporting the final version of the bill, noting that ``it does take some steps forward.'' Yet he hopes tougher reforms will emerge from the Democrat-controlled Senate, which has yet to take up the issue of accounting reform.

Bush, Royce and other Republicans have rejected more stringent regulations, saying they would impose an unfair burden on accountants and businesses.

The House bill would empower the Securities and Exchange Commission to set up a new auditing oversight board. It would also limit the consulting services that accounting firms can offer to their audit clients, require companies to disclose financial transactions not reflected on their balance sheets and would bar top executives from selling company stock when similar bans are imposed on employees and their retirement plans.

Left on the floor last week was a Sherman-sponsored amendment that would have required accounting firms auditing publicly held corporations to carry liability insurance to cover investor losses caused by their errors. He also sought to require the SEC to review and, if need be, challenge information contained in annual reports issued by the nations 500 largest corporations.

``If you start up a company by raising $20 million with a stock sale, the SEC carefully reviews your application and demands clarifications,'' Sherman said. ``But once you're a billion-dollar corporation with thousands of private investors, the SEC doesn't even read your report.''

Sherman stressed that his proposals would not burden small businesses. The new federal rules would be imposed only on large, publicly held corporations.

Robert M. Levy of West Hills, Sherman's Republican opponent for the 27th Congressional District seat, said he also supports federal intervention in the financial realm, but argued that Sherman and other lawmakers are focusing on the wrong problems and victims.

``My opponent is an accountant and thinks of Enron as a tragedy for accountants,'' he said. ``It was actually a tragedy for workers who lost their retirement savings.''

Levy, an attorney specializing in family law, proposed that the federal government set up an insuring agency to protect and regulate workers' 401(k) savings plans.

Modeled after the Federal Deposit Insurance Corp., which protects consumer bank deposits, the program would be entirely financed with fees paid by 401(k) fund managers.

Levy also claimed that Sherman may be influenced by campaign contributions from the accounting industry. Federal Election Commission records show Sherman has received $14,250 from Big Five accounting firms, including $4,000 from Andersen, $5,000 from KMPG International, and $5,250 from Deloitte and Touche.

FEC records show that Levy's campaign has yet to raise the minimum $5,000 required before candidates must begin making detailed reports to the agency.

Sherman denied any influence from contributors but noted that his House colleagues, including those on the Financial Services Committee, have been relying on his accounting expertise as they seek remedies.

Asked if he thought his fellow lawmakers lacked the knowledge to make informed decisions on accounting reform, Sherman said, ``I vote on health care issues, and I don't know where my spleen is. But I can understand the public policy issues. So can my colleagues when it comes to accounting.''

Mike Ueltzen, chairman of the government relations committee of the Redwood City-based California Society of Certified Public Accountants said the group supports national reform and the House bill is s dramatic step forward.

``We have a national problem, and the only way to solve it is on a national level,'' Ueltzen said. ``We have to resolve the perception and the reality of what our profession stands for and well support whatever it takes to get there.''

Ueltzen said the CSCPA is opposed to a package of accounting reforms moving through the California Legislature.

``At what point can California regulate a California-based company that has operations and investors around the country?'' he said. ``State rules would just be too tough to apply.''

Ueltzen, a Sacramento CPA, expressed dismay over the way Enron's collapse and Andersen's alleged role in the debacle has cast a pall on his profession.

``Ethics are the hallmark of our profession,'' he said. ``When you audit a company, your main concern should not be with its executives. Your real clients are the thousands of stockholders who've invested their money in that company.''