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Financial fraud detection act introduced.

The Financial Fraud Detection and Disclosure Act (HR 4313) was introduced in the House by Congressman Ron Wyden (D-Oreg.). The bill, among other provisions, would require auditors to report to the Securities and Exchange Commission any fraud not promptly corrected or reported by management.

HR 4313 would require the SEC to prescribe methods to be used by auditors to detect and report illegal acts, identify related party transactions and evaluate a business entity's ability to continue as a going concern.

The bill also contains a provision intended to provide a safe harbor limiting auditors' liability for reporting illegal acts. The safe harbor would end for fiscal years beginning on or after January 1, 1996.

Wyden calls the proposed legislation "an effort to bring accountants back to the first line of defense against cooked books and other rip-offs in publicly traded companies." House Telecommunications and Finance Subcommittee Chairman Edward Markey (D-Mass.) and Energy and Commerce Committee Chairman John Dingell (D-Mich.) joined Wyden as original cosponsors.

The bill's opponents, however, warn that the bill, as drafted, could remove standard setting from the private sector.

The American Institute of CPAS, citing its belief the setting of auditing standards should remain in the private sector, opposes the bill. The Institute also said the safe-harbor provision included in the bill is inadequate and that HR 4313 should address the broader issue of unwarranted legal liability that the profession is facing.

The Institute noted, for example, the rule of joint and several liability" should be eliminated in favor of "proportionate liability." Under the rule of joint and several liability, all defendants are held equally responsible regardless of their degree of actual responsibility. In proportionate liability, defendants are responsible for their proportional share of damages.

The Institute said it will work with Congress to address these concerns.
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Title Annotation:Financial Fraud Detection and Disclosure Act
Publication:Journal of Accountancy
Date:May 1, 1992
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