The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“ACCOUNTING REFORM” mentioning the U.S. Dept. of Energy was published in the Senate section on pages S10-S12 on Jan. 23, 2002.
The publication is reproduced in full below:
ACCOUNTING REFORM
Mr. CORZINE. Mr. President, I very much appreciate the opportunity to work with Senator Dodd on something that I think is vital to the American public, vital to the functioning of our financial markets and the health of the economy generally. Just as electoral reform is important, and I congratulate yourself and the Senator from Missouri and others who are leading us in that fight, I hope we can get the same kind of bipartisan focus on something that I think will make a difference to the functioning of our economy and our financial markets and the protection of investors that we are suggesting in the bill we are introducing today.
It is also unique on this side of the table to work with Senator Dodd. I remember, as a former businessperson, testifying in Congress. Senator Dodd always asked the toughest, meanest questions of folks with ideas they wanted to suggest. He was always spot-on with regard to their strengths and weaknesses. It is a great honor to work with him in the effort to protect American investors by strengthening the regulation of our accounting profession.
The dramatic and sudden collapse of the Enron Corporation has shined a spotlight on the critical importance of auditors, the accounting function, in the operation of our economy. Enron's collapse has left thousands without a job and, maybe more important for many, without a chance for a meaningful retirement program that we worked so hard and long to provide.
It has been an economic disaster for pensioners, individual investors, and even institutional investors who relied upon the accounting statements, earnings statements, balance sheets, and analyses that flowed from that. Frankly, a lot of people think this came right out of the blue. A year ago this was the company with the seventh largest revenue in the country. Today it is bankrupt. It did catch people by surprise.
Now it appears that for years Enron engaged in a variety of questionable and certainly gray accounting practices--not the most transparent to the world--to hide debt and inflate its earnings so they would have the ability to position their stock at a higher value over time. We all took the hook. Yet Enron's auditors blessed these arrangements and raised no serious red flags for investors, even though they had some questions in their own minds. It is now obvious those individual auditors failed, and I think failed miserably, in making some judgments about what should have been published at the time.
Unfortunately, the failure of the auditors in the Enron case is not unique. We have seen several examples, highly public examples, of questionable accounting practices leading to serious problems in the statements of financial condition of companies across the country over the last few years. There has been a failure to blow the whistle when that should have occurred. In fact, we have seen a regular pattern that has developed of earnings restatements by some of the finest companies and corporations in America.
That in and of itself gives cause for concern, since people make judgments about what it is they are going to do in the investment world based on their interpretation of balance sheets and income statements that are presented at a given point in time. That is how they make future judgments. Clearly, some of those judgments in history were wrong because the restatement of earnings indicates there were differences in fact.
I think we need to be much more careful in this whole process. There is a whole series of detailed issues that I think need to be addressed--maybe not by Congress but in a much more fast-footed FASB, or Financial Accounting Standard Board, than we have had.
Based on my experience in the real world--or the financial world; I don't know whether that's the real world--I can point to several possible explanations for these accounting failures. One is the serious increase in the complexity of these financial arrangements generally. The issue of derivatives and off-balance-sheet financing and the matter of notional amounts versus revenue standards--all of those things are very complicated in and of themselves. But there is an inadequacy, I believe, in our existing accounting structure to really scrutinize these and get to the nub of how they are reported on a timely basis.
Another problem is accounting firms increasingly are facing extreme pressures to find other sources of revenue, which often means generating new forms of revenue from the same businesses they audit. This, obviously, can create conflicts in reality and certainly in appearance. And I think they undermine the independence required of auditors as we go forward.
Another problem is that our regulatory structure, in my view, has been inadequate. It has relied far too heavily on self-regulation by the industry. That is a little bit like, what? Having the fox watch the hen house. Certainly I think it deals with an appearance issue that the public has a right to have us ventilate as we go through this debate. I think we need to do something about it.
Another problem is the integrity of the process for setting accounting standards. I talked about this before and whether that process has been compromised or certainly complicated by the nature of how that process takes place. In some cases, as I heard Senator Dodd talk about, the fault may lie right here in this body, in the Congress. Certainly there is the appearance of political pressure getting wrapped up in how FASB, the Financial Accounting Standards Board, sets its rules.
These are true professionals who work very hard to try to get to setting down rules that will work in the accounting world. But these are complicated issues. And then sometimes people enter in from the political process and stop it, halt it, and we have not seen the kind of progress for the kind and nature of complexity that has developed in the financial world.
The bill Senator Dodd and I are proposing is a significant first step towards addressing the problems I have outlined in the accounting profession. It includes tough new provisions to ensure the independence of auditors and restrict their ability to provide nonaudit services that inevitably create conflicts of interest. Whether that comes when you are working with the company or you separate it, I think we have some real reasons for debate on that. But I think we will work very hard to make sure people have confidence that we are auditors and we are working on functioning with a given company to present the data in a way that works a lot more like what the former SEC Chairman, Arthur Levitt, would suggest.
Also, our bill strengthens the Securities and Exchange Commission to put them in a better position to deal with the accounting industry on a real-time basis. I heard Senator Dodd talk about 20 or 25 accountants for the largest economy in the history of the world. A 10-trillion-
dollar account economy, and we have 25 accountants sitting over in a building across the street trying to figure out whether we are reporting accurately for all these companies. Just on the surface of it, it does not meet the standard of common sense.
We propose to double the size of the SEC's accounting staff. I think we need to seriously review what resources are necessary to deal with these problems so the public can have confidence with regard to what is going on in our accounting statements across the country.
In addition, the bill would help close the revolving door between auditors and their clients which also creates real conflicts of interest. We have set up rules in other parts of our economy for people who work in a particular area. An example is, if a person works in the Energy Department, they cannot go to work for an energy company an hour and a half after they leave their job.
I think it raises serious issues involving conflicts of interest when people go through a revolving door format going from being auditors to auditees. I think we need to look at those issues to make sure we have confidence that the chief financial officers, and others who have worked with the accounting firms, are truly being challenged independently by the accounting function. It is important.
As a former CEO, it was good to know that people could come in and say: You have these kinds of problems you need to check out. That is where the independent auditor performs an enormous service, aside from the financial statements. When that gets compromised because people are so close to one another, I think you run risks of setting up dangerous precedents on how decisions are taken within the audit function.
Finally, our bill would strengthen the independence of the Financial Accounting Standards Board--I have talked about this; so has Senator Dodd--which sets the accounting standards. We would do this by establishing a steady funding source and demanding greater timeliness of action by the FASB. This is truly one of the issues that needs to be addressed.
We need to get on with a lot of the specific issues that have been addressed and have been tied up in knots for literally years and decades inside the Financial Accounting Standards Board. I think we can make a big difference in the functioning of our accounting system if we make sure we provide the resources to allow them to do their job appropriately.
I believe these proposals will go a long way toward strengthening the accounting profession and protecting the integrity of the markets and protecting, ultimately, the investors and the retirees who are dependent on the information they derive from these accounting statements.
It is absolutely essential we have this debate, this discussion, and that we are intent on making sure we get to a secure system and that this not be a political issue. This is about making sure our financial markets work effectively.
I look forward to working with my senior colleague from Connecticut who has done such an outstanding job on a whole host of these issues. We are working to gain the public's trust. One way to do that is to make sure independent auditors are exactly that--independent.
I think we need to respond. I hope we can do that quickly. We need to do it thoughtfully because we do not want to cause more problems than we fix. It is one of those things where making sure it is done right is very important because we are tinkering with the fundamentals of our economy. But we need to have good accounting statements to make sure people can make decisions on their investments in a way that is sensible and true to the facts as they stand.
I appreciate very much this opportunity to work with Senator Dodd.
Mr. DODD. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. NELSON of Florida. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. Reid). Without objection, it is so ordered.
Mr. NELSON of Florida. Mr. President, I ask unanimous consent to speak for up to 5 minutes.
The PRESIDING OFFICER. The Senator from Florida may proceed.
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