(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Chairman Pitt Calls for Accounting Reforms

SEC Chairman Harvey L. Pitt observed that the current system of "disclosure, financial reporting, corporate governance and accounting practices has shown serious signs of failing to keep up with the needs of today's investors, our economy, and new technology that makes rapid communications not only possible but essential." In light of high profile accounting and financial reporting failures such as Enron, Chairman Pitt called for improvements to the present system of financial disclosure.

Initially, he described the periodic reporting system as "old and not good enough" in which disclosures are made "not to inform, but to avoid liability." He called for a move to a system of "current" disclosure. He also stated that there is a need for more prompt action by the Financial Accounting Standards Board concerning disclosure standards and suggested that the SEC needs to improve the way we oversee our disclosure and financial reporting system. He finally called for reform of the regulation of the accounting profession. With regard to discipline, Mr. Pitt stated that the regulatory system should be subject to a new body that is dominated by public membership. The body should be empowered to perform investigations, bring disciplinary proceedings, publicize results and to restrict individuals and firms from auditing public companies. According to the chairman, the SEC should decide whether improper conduct should be pursued as violations of law reviewed by the SEC or as violations of professional standards to be handled by the private sector regulatory body. Any such private sector disciplinary actions should be subject to SEC oversight, he noted.

Chairman Pitt also called for reform of the current peer review process. In his view, the new process should replace the current triennial firm-on-firm peer review with more frequent monitoring of audit quality and competence designed to produce better audits in the future.

Mr. Pitt concluded by stating that "a strong accounting profession is key to our capital system, and we are firmly committed to assuring that it functions properly, expeditiously and in the public interest." He expressed confidence that "input from all sectors we can erect a system that will restore public confidence in the integrity of the accounting profession."