SEC Chair Harvey Pitt - Q & A of News Conference to Discuss Accounting Regulation; Jan. 17, 2002 (C - Span); T. Morris Notes

Q1: Why not put the SEC directly in the oversight position?
A: It is, there is much to be done and we would need more staff and money. We believe that the private sector bearing these burdens is the best way.

Q2 (Bloomberg reporter): Paraphrasing Hamlet, Is there something rotten with the accounting profession today? Also, what about limiting consulting work for auditors?
A2: [Pitt commended reporter on phrasing a yes/no question that's difficult to answer without creating controversy] There are multifaceted problems; the system has shortcomings but I believe it's meaningless - childish and sophomoric -- to try to brand/characterize an entire profession across the board. Regarding consulting, auditor independence is a critical part of financial reporting. But auditor independence isn't the cause of the problem. The system has enough flaws and problems that cry out for repair. There's a big difference between auditor independence at the global level and at the individual auditor partner level. My level is for there to be no confusion at the individual partner level about auditor independence, including how and for what the auditor is compensated.

Q3 (Susan at Reuters): Are the problems with disclosure rather than with the audit itself? Also, what role is there for the POB/AICPA?
A3: Restoring public confidence in the audit system is goal number one. Regarding the POB/AICPA, I contemplate the AICPA would have no role in the disciplinary or quality control functions. The AICPA does have a long-standing role, e.g., in setting ethical standards and audit principles. We have to find a way to take advantage of that knowledge.

Q4 (CNBC): Regarding the status of Pitt's recusal.
A4: Pitt recuses himself from responding to questions about recusal.

Q5: Regarding putting limits on CPAs going to work for their clients.
A5: Not everything about our present system is bad and not everything necessarily needs to be improved. I want to make sure we don't eliminate something that has value. Perhaps this is an area that needs restructuring.

Q6 (Los Angeles Times): Regarding Pitt/SEC consulting with congressional committees; is there legislation needed in this area? Also, reports on steps you've taken toward recusing yourself?
A6: Congress should make its own decisions. Our [the SEC's] role is to initiate meaningful discussion on ideas, to develop and bring forward more information, and to work assiduously with Congress toward legislation. If no new legislation is made, then we will work within the existing regulatory/legislation framework to make them work. But first we will take to everyone involved so they have input into whatever is done.

Q7 (ABC News): Could a POB-type group have prevented Enron six months to a year ago? Also, what is the status of the current vacancies on the Commission and how do they affect this current issue?
A7: This body would have to have real teeth and be able to produce real results-the power to compel documents, take testimony, and oust from the profession anyone who doesn't comply. Second part of question: The President, not the SEC Chair, nominates Commissioners. The President would nominate only the most qualified people. At my own confirmation hearing, I stated that when I left the private sector, I traded those wonderful clients for another wonderful client, the investing public.

Q8: Regarding the lack of formal nominations for vacancies on the Commission. Currently only two Commissioners are sitting. Is the SEC hobbled? How well can it act?
A8: I believe the President has formally nominated two individuals; I'm not sure when Congress will act on them. Two more nominations are needed; they must be from the Democratic and/or Independent parties. Second part of question: [implicitly stating that the SEC has not been hobbled by vacancies and has been acting] We have put advice out to corporations regarding disclosures including MD&A, and about audit committees. We will monitor and enforce. Until the full complement of Commissioners is in place, we won't allow that to slow us down. On the other hand, to the extent issues are controversial, we will take steps to get as complete a complement of the Commission as possible involved. Commissioner Hunt is on staff and he gets all information, briefings, etc. [I noted that Pitt said something that sounded like Hunt is not a voting Commissioner.]

Q9: Follow-up on Pitt's statement re "decade of neglect" by FASB, etc., to what extent does the SEC bear responsibility?
A9: When a tragedy like this one occurs, my first instinct is to look inward, not outward, in terms of where responsibility lies. We'd be remiss if we didn't make an effort to discuss how to improve. I prefer finding solutions to affixing blame. Remember - Enron took years to implode; it didn't happen overnight.

Q10: How would you characterize your contacts with the Big 5?
A10: As SEC Chair, I'm willing to negotiate only with the OMB - especially not with anyone subject to the SEC's regulations. I encourage the accounting profession to take full responsibility for solving these problems. They may fight us, but we won't back down. The public interest is not something that can be negotiated.

Q11: Regarding the effectiveness/appropriateness of self-regulation?
A11: It's foolish to assume that the accounting profession can be regulated in the same was as the securities industry is by the NASDR. But there are similarities. The model we're discussing draws on the areas of disciplinary power, quality-control power, and predominating attention to serving the public interest.

Q12: In 1994, you [Pitt] public an article on the destruction of documents. Doesn't Andersen seem to have followed your advice on destroying incriminating documents up to the time they are subpoenaed?
A12: Your question is about something that was not in what I wrote. Andersen is an ongoing investigation and I won't comment on it. Whatever advice one gives as a private attorney is different from what you say when you put on your public-interest "hat." Since I've been SEC Chair, I've said that we reserve our harshest enforcement for enforcement for anyone who lies in or obstructs an enforcement inquiry.

[C-Span broadcast ended at 2:19 p.m. with Q&A still ongoing]