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GIVING a major jolt to the accounting profession, the US Senate has unanimously passed the `Accounting Reform Bill', a.k.a. the Sarbanes Bill.

The more detailed description of the Bill is that it is an original Bill to improve quality and transparency in financial reporting and independent audits and accounting services for public companies, to create a Public Company Accounting Oversight Board, to enhance the standard setting process for accounting practices, to strengthen the independence of firms that audit public companies, to increase corporate responsibility and the usefulness of corporate financial disclosure, to protect the objectivity and independence of securities analysts, to improve Securities and Exchange Commission resources and oversight, and for other purposes.

The Bill, S.2673, authored by the US Senate Banking Committee Chairman, Mr Paul Sarbanes, was introduced less than a month ago. And by a vote of 97-0, the American Senate unanimously approved the Bill with a few amendments, to set in motion a broad overhaul of corporate fraud, securities and accounting laws.

So, what was being thought of as a distant possibility has become a near reality, by creating an oversight board that is empowered to: set accounting and auditing standards; fine or ban any individual or firm that violates the standards; bar accounting firms from providing consulting services to the companies they audit; provide whistleblower protection for employees of public companies; and impose a 10-year securities fraud felony for anyone who knowingly defrauds shareholders.

While many see the Senate legislation as a tougher alternative to what the House of Representatives has passed (in the form of Oxley Bill), or what President Bush proposed, and also the SEC plan, nearly two-thirds of those surveyed by NewsWeek think the Senate's corporate-reform legislation is too weak to curb future corporate wrongdoing.

The Bill would establish a new funding source for the oversight body, eliminating the Financial Accounting Standards Board (FASB) model of relying on voluntary contributions from corporations and auditors. Instead, all publicly traded companies would have to pay fees, based on their size, to fund the group's annual budget of about $24 million.

The flaw with the current funding system has been that the FASB had to solicit about a third of its revenues as donations from accounting firms and corporates. Also, there has been the charge that the FASB was too slow in addressing urgent issues such as those exploited by Enron. And that the FASB had no power to enforce the standards it set, relying instead on auditors and the SEC.

More reforms are possible, some say, in the areas of corporate stock option plans, work of securities analysts, training on business ethics, independence of directors and range of activities permitted for auditors. The original impetus to the Bill came from the collapse of Enron but much water has flown under the bridge thereafter. It is natural, therefore, to expect more changes to come forth.

Sadly, and predictably, the professional body the American Institute of CPAs had not prepared any position papers on the issues and had no immediate comment on the latest Bill.

D.M.

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