Corporate Governance

While Markets Plunge, Special Interest Groups Seek to Weaken Corporate Reform Legislation in Closed-Door Negotiations

Public Interest Groups Call for Quick Passage of Corporate Reform Package Containing All of the Senate Bill's Key Reforms

 |  Press Release

Washington, D.C. — Special interest groups, with major accounting firms in the lead, are using behind-closed-door conference committee negotiations to renew their attack on corporate reform legislation, public interest groups warned Monday. A list of proposed amendments submitted to conferees by the American Institute of Certified Public Accountants, PricewaterhouseCoopers, and other industry groups, as well as changes suggested by Senator Phil Gramm and Chairman Michael Oxley strike at the heart of the bill’s key reforms, warned Consumer Federation of America, Common Cause, Consumer Action, and U.S. Public Interest Research Group.

The four public interest groups wrote to all members of the conference committee on Monday urging them to “reject these transparent attempts to gut the legislation’s key audit reform provisions” and to instead support quick passage of legislation with the Senate bill’s investor protections intact.

“While the markets were plunging Friday and members of the conference committee were using their opening statements to pledge their support for passage of the strongest possible corporate reform legislation, the special interest vultures were already circling,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “The Worldcom revelations may have scuttled the accounting firms’ plans to weaken the bill on the Senate floor, but the fact that two of the highest ranking Republicans on the conference committee are pushing their anti-reform agenda in conference indicates their efforts to gut the bill’s key protections are alive and well.”

“It’s no accident that accounting reform legislation is being negotiated behind closed doors,” said Common Cause President Scott Harshbarger. “Since 1995, Members of the House-Senate conference committee working on this crucial accounting reform bill received $1.3 million in campaign contributions from the Big Five accounting firms and their trade group, the American Institute of Certified Public Accountants (AICPA). Within the past 18 months, the Big Five and AICPA also employed an army of 90 lobbyists, including 51 who have previously worked in a federal agency or in a senior staff position on Capitol Hill, and spent more than $8 million lobbying in Washington. All that money and lobbying clout buys a lot of secrecy. ”

“Consumers were promised sunlight by the conferees and all they’ve gotten is more closed doors,” said Edmund Mierzwinski, Consumer Program Director for the U.S. Public Interest Research Group. “This once-promising conference appears to be more business as usual.”

The groups analyzed proposed amendments submitted to conferees by various industry groups as well as lists of suggested changes to the bill from Senator Gramm and Chairman Michael Oxley. Focusing on audit reform issues, they urged conferees to do the following:

  • Don’t adopt proposed amendments to weaken auditor independence reforms by removing the statutory prohibition on certain non-audit services, opening up new loopholes in auditor independence rules, gutting the requirement for audit committee pre-approval of non-audit services, and eliminating provisions making corporate board audit committees directly responsible for overseeing the audit;
  • Don’t tie the hands of the new auditor oversight board by limiting the board to enforcing standards set by the accounting profession it is supposed to regulate, by removing its authority to enforce securities laws, by eliminating the requirement that auditors test companies’ compliance with internal controls designed to prevent financial fraud, or taking other steps to scale back the board and the Securities and Exchange Commission’s regulatory authority;
  • Don’t shield auditors from accountability to their victims when they are guilty of fraud by removing the provision lengthening the statute of limitations.

Only quick House passage of legislation retaining all of the Senate bill’s key investor protections would send a “clear message to American investors that congress and the administration are capable of acting in a bipartisan fashion to adopt a strong package of reforms,” the groups wrote.