A unanimous US Senate voted last night to revamp accounting regulations and securities laws to restore investor confidence, which lawmakers say has been shaken by corporate financial scandals.
Senate passage of the corporate governance legislation sets up negotiations with House lawmakers to draft final legislation that President George W. Bush said he wants on his desk before the August congressional recess and the November elections.
"For nearly 70 years, our framework of securities laws has proven remarkably effective at protecting investors," said Senator Paul Sarbanes, Banking Committee chairman and sponsor of the Senate bill. "Recent events, though, have shown how urgently this framework needs reform."
The 97-0 vote in the Senate indicates the bipartisan consensus that has built around changing how corporate finances are reported since disclosures of accounting irregularities at companies such as Enron Corp, WorldCom Inc, and Adelphia Communications Corp.
The Republican-led House passed its version of accounting oversight legislation in April. Since then, Bush has called for new criminal penalties for corporate fraud as more companies reported they inflated earnings. Eight companies in the Standard & Poor's 500 Index, including Xerox Corp, have announced plans to restate results for last year.
The Dow Jones Industrial Average plunged as much as 440 points yesterday before it rebounded to close at 8,639.19, down 45.34, or 0.5 percent. In a speech yesterday afternoon, the president sought to reassure investors that the US economy is fundamentally strong and will recover from a "hangover" that is the result of an "economic binge" during the late 1990s.
The bill passed by the Senate would create a five-member accounting oversight board that would work with the Securities and Exchange Commission to define and enforce accounting and audit standards for public companies. It also would increase prison terms for defrauding investors and give shareholders or employees more time to sue companies.
Good-doers
Bush said in a statement last night he was "pleased the Senate has now acted on a tough bill that shares my goals."
Still ahead are negotiations with Republican leaders in the House, who have opposed some of the tougher measures in the Sarbanes legislation.
The House also voted to set up a five-member accounting oversight board.
At issue between the two bills is how much independence and enforcement authority the board will have and how specific final legislation will be regarding on changes for the accounting profession, said Allen Koltin, chief executive of the Practice Development Institute, a Chicago-based consultant to accounting firms.
"It's an open document," Koltin said. There's "a tremendous amount of debate yet to take place."
Representative Michael Oxley, Republican chairman of the House Financial Services Committee and sponsor of the House bill said that while the two bills are not very different he doubted final legislation could be drafted in three weeks.
"It would be unprecedented for us to do a conference that quickly," he said.
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