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Pending legislation requires profession's response, says Lee.

B. Z. Lee, the American Institute of CPAs deputy chairman - federal affairs, highlighted legislative issues that are likely to confront the profession during Congress's current session.

Speaking at the AICPA Securities and Exchange Commission Developments Conference in Washington, D. C., Lee noted the profession is under greater scrutiny than in the past. In particular, Congress's attention has turned to auditors in the wake of the savings and loan crisis and publicity about problems facing the banking, insurance and real estate industries. In response, Lee called for the profession to engage in "level and pace of activism with which CPAs are not always comfortable."

Said Lee, "Whenever there is worry about financial weakness in one or another sector, or suspicion of abuse or desire to police government-mandated financial controls, someone in Congress will think of the auditors." Pending legislative proposals affecting CPAs include the following:

Role of the auditor. In the last Congress, legislation passed the House (but later died) that would have expanded the attest role of the auditor. In the current session, Congressmen Ron Wyden (D-Ore.) and Edward Markey (D-Mass.) have introduced a new version of the measure.

The Bill, HR 3159, would

* Authorize the SEC to require special reports by the registrant's CPA when the commission believes material illegal acts may have been or are being committed.

* Require the SEC to prescribe methods to be used by the auditor to detect illegal activities and report them to the issuer's audit committee or board of directors.

* Require the SEC to conduct a study to determine the extent to which registrants comply with the internal control requirements of the Foreign Corrupt Practices Act and consequently whether mandatory internal control audits would be beneficial.

Expressing concerns about the Wyden - Markey bill, Lee said the Institute would work with legislators to ensure any such legislation does not mandate attestations outside the CPA's expertise to perform, conflict with auditing literature or erode private sector responsibility for establishing accounting and auditing standards.

Rico. A measure to limit frivolous suits under the civil provisions of the Racketeer - Influenced and Corrupt Organizations Act (RICO) was introduced by Congressman William Hughes (D-N.J.) and passed by the House Judiciary Committee last year. "The Institute is strongly supporting this bill and opposing any amendments to water down its benefits to the profession," said Lee.

Statute of limitations for securities fraud. Legislation is pending to lengthen the stature of limitations for cases brought under section 10(b) of the Securities Exchange Act of 1934. The Institute believes the debate over this question should look more broadly at a system that encourages unjustified securities suits against legitimate businesses in the knowledge it will probably be less costly for the defendant to reach a settlement than to prove innocence.

ERISA reform. The administration is expected to introduce legislation to amend the Employee Retirement Income Security Act (ERISA). The package is expected to prohibit so-called limited-scope audits of employee pension plans, require pension plan auditors to undergo peer review every three years and require some form of backup reporting of ERISA violations by the auditor to the Department of Labor.

Other legislation. A bill that would allow Bell telephone companies ("baby Bells") into new lines of business also would require auditors of these companies to rotate every few years - under what Lee termed the "noxious assumption" that when auditors stay with a client too long, their independence is compromised.

Proposals also are expected concerning regulatory audit requirements for all insurance carriers.

Leading the debate. With Congress focusing more attention on the auditor's role, "the accounting profession must be in a position to lead that debate, not merely react to it," Lee said. He pointed to the Institute's successful efforts regarding the recent banking bill - providing technical assistance and ensuring consistency with authoritative accounting and auditing literature (see "The FDIC Improvement Act: A Precedent for Expanded CPA Reporting?," page, for an in-depth look at the role played by the AICPA in the passage of the new banking legislation).

"Just as we must be relied on for technical assistance," he concluded, "we must be looked to for guidance as to what represents an improvement to the financial reporting system versus an unwarranted intrusion in the private sector."
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Title Annotation:B.Z. Lee, American Institute of CPAs
Publication:Journal of Accountancy
Date:Apr 1, 1992
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