VideoAnd everybody thought The W was going to lighten the load on corporate America.
Today, President Bush is expected to propose a comprehensive plan to crack down and punish corporate executives who mislead investors. According to Reuters, Bush's proposal is also expected to include "unprecedented regulation" of the accounting industry.
The Bush crusade, of course, is in response to the bankruptcy of Enron Corp. It also may have something to do with the heaps of criticism the President has received for his relationship with the now-bankrupt Houston energy trader. Over the years, Enron management has been a frequent—and generous—contributor to Bush's many campaigns.
What's more, public outrage over Enron increases on an almost daily basis, and skepticism about the reliability of corporate financial statements continues to roil the stock markets. Thus, the Administration may have had little choice but to do something dramatic.
The White House is expected to propose holding CEOs accountable by requiring them to personally attest to the accuracy of their quarterly financial statements and disclosures, according to Reuters, citing White House documents. Under the proposal, managers who commit accounting fraud would be forced to relinquish their bonuses and other compensation. In addition, the Administration reportedly wants corporate lawbreakers to be barred from serving as officers or directors at other publicly-held corporations.
Under the Bush proposal, top officers and directors who buy or sell their company's stock would have just two days to inform investors about the transactions. Currently, corporate managers have at least until the 10th day of the month before they must reveal those sorts of insider dealings. In some cases, that means executives do not have to report their trades for nearly 30 days. A lot can happen to a company's share price in a month.
It remains unclear how Bush's proposal will affect SEC chairman Harvey Pitt's ongoing efforts to speed up corporate disclosure. Pitt also wants to overhaul the accounting profession. At the heart of that overhauling: doing away with the industry's controversial peer-to-peer audits and establishing an independent oversight board (see "Pitt Wants a New Accounting").
Auditors Go Out, Auditors Come In
Freddie Mac is the latest company to fire Andersen as its auditor. Yesterday, officials at the mortgage lender announced they had hired PricewaterhouseCoopers as the agency's accountant for 2002.
Andersen had served as Freddie Mac's auditor since 1970. Freddie did say that Andersen will continue to provide consulting services, however.
In a press release, Freddie Mac said, "There were no disagreements between Freddie Mac and Arthur Andersen regarding accounting matters."
Freddie Mac is just one of several companies in the past few weeks to announce the dropping of Andersen as auditor. As you recall, last Friday drug giant Merck & Co. dropped the embattled Andersen after a 30-year relationship. And no, we still have not run across a case where a company fired its auditor and hired Andersen.
Anecdotally, it appears that PwC is picking up the bulk of Andersen's former clients. Then again, Andersen isn't the only accounting firm that's losing clients of late. Yesterday, for example, Net.Bank Inc. noted it would drop Deloitte & Touche as its external auditor following the audit of the company's 2001 financial statements. Net.Bank will change to Ernst & Young, according to the filing.
Management at the online financial-services company said in an SEC filing the decision was made to "separate its internal and external audit functions in light of the current regulatory environment." And, in fact, the company plans to keep D&T to render nonexternal audit services.
Net.Bank management said it had no disagreements with D&T over accounting matters during the past two fiscal years or in the period preceding its notification of the auditor change.
Meanwhile, Grant Thornton resigned as Aviation Distributors Inc.'s auditor on February 26, according to an SEC filing. Aviation Distributors, which sells new and used airplane parts, hired Squar, Milner, Reehl & Williamson as its new auditor.
"Grant Thornton's reports on the company's financial statements for the years ended December 31, 2000 and 1999 contained an unqualified opinion with an emphasis paragraph describing an uncertainty as to the company's ability to continue as a going concern," according to Aviation Distributors's SEC filing.
The company's management did state that "there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, audit scope or procedure which, if not resolved to its satisfaction, would have caused it to make reference to such disagreement in connection with its report."
Management at Aviation Distributors said the company's dominant shareholder pleaded guilty in February 2002 to criminal charges of deceiving its prior bank and previous auditors in 1997. Grant Thornton has determined that this shareholder was active in management of significant aspects of the company's operations in the year ended December 31, 2001, it added.
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