The following editorial appeared in today's Washington Post:
When the Senate passed its package of post-Enron reforms unanimously on Monday, President Bush said he was "pleased the Senate has acted now on a tough bill that shares my goals." But he isn't apparently pleased enough to back the Senate reform against its enemies. This week a White House spokeswoman, Claire Buchan, explained to us that the president regards the competing House version of reform as pleasing too: "He views the House legislation as tough and the Senate legislation as tough," she offered. This is a bit like saying that America's army is strong and Belgium's is strong also.
The truth is that the House bill isn't tough on many of the key post-Enron issues. Whereas the Senate creates a robust oversight board for auditors, for example, the House offers the pretense of one. In the Senate reform, only two out of five board members would come from an accounting firm; in the House version, as many as four out of five could do. Under the Senate bill, the new board would have an independent financial base and power to compel evidence from auditors; the House leaves these details fuzzy. In the Senate reform, the board would be appointed by the Securities and Exchange Commission; in the House version, the SEC's role is restricted to blessing private efforts to assemble a board -- efforts that would doubtless be led by the accounting lobby.
What's more, the House version fails to give its new board power to write auditing standards. At the moment, these standards are written by the auditors' own lobbying outfit; not surprisingly, they do not require auditors to carry out the tough procedures that might catch fraud. The Senate bill sensibly transfers standard-writing authority to the new audit oversight board. By failing to do this, the House is essentially saying: A new board will oversee compliance with audit standards, but these standards will continue to be woolly.
Then there is the question of auditors' conflicts of interest. The Senate bill lists nine kinds of consulting services that auditors may not sell to their clients. It also requires that other services be approved by an audit committee made up of company board members. The House makes a show of restricting a shorter list of services, but then says that the SEC should do whatever it wants on this issue. Under the House bill, accounting firms might continue to offer opinions blessing Enron-style, off-balance-sheet partnerships, then send their auditors along to certify that -- surprise, surprise -- the use of mirrors and great billowing clouds of smoke is utterly in keeping with generally accepted accounting principles.
We could go on. The Senate reform ends the absurdity that the Financial Accounting Standards Board, which writes accounting rules, is largely funded by the accounting profession; the House is silent on the issue. But the basic point is clear. The president cannot hide behind the claim that the Senate and House versions of reform are both "tough." There is a world of difference between the two. If the president really supports honest corporate disclosure, he needs to back the Senate bill against the anti-reformers in the House who are trying to dilute it.
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