New York State Comptroller McCall Urges SEC to Adopt New Standards to Protect Investors

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New York State Comptroller McCall Urges SEC to Adopt New Standards to Protect Investors

ALBANY, N.Y. -- New York State Comptroller H. Carl McCall Friday urged the Securities and Exchange Commission to implement reforms to protect investors from the kind of misleading information that caused millions of people to suffer devastating financial losses from the decline of Enron's stock.

McCall developed his proposals in consultation with former SEC Chairman Arthur Levitt, Jr., who has voiced his support of the plan. McCall outlined specific reforms that should be taken by the SEC, auditing firms and the state to lessen the potential conflicts of interest that caused the Enron/Andersen situation. In addition to his proposal to the SEC, McCall called on the Big Five auditing firms to adopt similar standards and asked Gov. George Pataki to institute auditing standards for state agencies that McCall will be adopting for his own state agency.

"Enron's collapse was a failure of the process that is supposed to protect all investors and assure them they will receive accurate and reliable information," McCall said. "As an investor and a trustee, I am outraged at the managers who ruined this once-strong company, but also at the fatally flawed oversight system that allowed the company to pull the wool over peoples' eyes."

McCall said the conflicts of interests inherent in Andersen's relationship with Enron appeared to be a crucial factor in contributing to the magnitude of investors' losses, and said that the SEC must act to eliminate those conflicts in the futures.

To make auditors more independent from the companies they audit, McCall recommended that the commission adopt the following standards:

prohibit auditors from providing non-audit services to audit clients except under limited circumstances;
limit audit relationships to a maximum of seven years;
and restrict auditors from accepting employment with clients for two years following work on an audit.

In his letter to SEC Chairman Harvey Pitt, McCall called Pitt's proposal to create a new entity to regulate the accounting industry an important first step, but said stronger measures were needed to ensure auditor independence.

He also released a letter he sent to the Big Five accounting firms urging them to adopt these standards voluntarily. On Friday, The New York Times reported that four of the Big Five firms have announced new auditing policies in an effort to head off the appearance of impropriety.

McCall also sent a letter to Gov. Pataki requesting that he issue a statewide Executive Order requiring that New York state agencies and authorities that contract services with auditing firms adopt similar standards. McCall said he would be submitting legislation to make this standard apply to all state agencies and authorities, and would be adopting this standard for the Office of the State Comptroller.

"The Enron/Andersen fiasco changed the investment world," McCall said. "Now we have to change the rules of the game to make sure it doesn't happen again."

Click here to read Comptroller McCall's full press release.
Click here to read Comptroller McCall's letter to the governor.
Click here to read Comptroller McCall's letter to the SEC Chairman, Harvey Pitt.
Click here to read Comptroller McCall's letter to the Big Five accounting firms.
Click here to read Comptroller McCall's letter to the SEC in September 2000.

-- NYSSCPA.org News Staff