Capitol hill proposes post-Enron reforms.

Congress is addressing the need for changes that will help restore investor confidence in corporate financial reporting. In late April the House passed a bill called the "Corporate and Auditing Accountability, Responsibility and Transparency Act of 2002." The proposed legislation would increase the SEC's involvement in the accounting profession's regulation, establish a new oversight body to ensure auditors' integrity and independence and mandate retention of certain audit records for a minimum of seven years. The bill also calls for changes that will affect the corporate community. Certain provisions would force companies to quickly disclose their financial condition and off-balance-sheet transactions upon the SEC's request and also would prevent corporate officers from exerting improper influence on auditors.

James G. Castellano, AICPA board chairman, acknowledged the "unprecedented times" call for "transformational change." But, he said, the profession "is prepared to support such modifications. In particular, we advocate moving the discipline and peer review processes for public company auditors from the private sector to a public body."

Sponsored by Representative Michael G. Oxley (R-Ohio), chairman of the House Committee on Financial Services, the bill passed with broad bipartisan support (334 to 90). It includes provisions that

* Direct the SEC to establish criteria for the creation of a public regulatory organization that would assume responsibility for discipline and peer review of auditors of public companies' financial statements. The profession would be represented on the board of the proposed body.

* Prohibit the SEC from accepting financial statements that are certified by an accountant unless he or she is in good standing with the public regulatory organization.

* Require the proposed body to obtain some of its funding from sources outside the profession.

* Charge the SEC with modifying auditor independence regulations to prohibit auditors from providing internal audit outsourcing services or financial information systems design or implementation services to their public company audit clients.

As the JofA went to press, the Senate had received the House bill and begun deliberating. President George W. Bush said the proposed legislation corresponded with his reform plan.