(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.)

Former Fed Chairman Volcker Briefs European Commission on Enron

The collapse of the Enron Corp. and the new sense of crisis only exemplify problems that have plagued the accounting profession for years, former Federal Reserve Board Chairman Paul Volcker recently told the European Commission. Long before Enron hit the headlines, he continued, in both the United States and Europe, there were restatements of earnings, sudden and massive write downs of intangibles, as well as the growing use of "pro forma" earnings that seemed to "come uncannily close" to analysts estimates while departing sharply from U.S. GAAP or IAS bottom line. It would be wrong, he told the EU, to think that the crisis facing accounting is limited to the United States. In his view, the suggestion that wholesale adoption of existing international accounting standards would be a "cure all" has no foundation. Mr. Volcker is currently chairman of the trustees of the International Accounting Standards Board and chairman of Arthur Andersen's Independent Oversight Board.

But the chairman does see a "silver lining" in the Enron crisis in the United States, which is the "opportunity for real reform." In that regard, he noted that, in the post-Enron world "everything is on the table," from the structure of the auditing profession, to the accounting standards, and even to the style in which accounting standards are set out--whether the emphasis is on matters of principle or detail.

The problems facing the accounting profession are systemic, he emphasized, partially fueled by the "enormous complications" of new financial instruments and techniques. The accounting profession has been hard-pressed to keep up with the growing complexity of finance with its "mind-bending complications of abstruse derivatives" and "seemingly endless varieties of securitizations." In addition, a whole new profession of financial engineering has been spawned, dedicated to finding exotic ways around accounting or tax conventions.

Noting European Commissioner Frederik Bolkestein's call for the United States to accept international accounting standards for listing purposes, Chairman Volcker said "that in fact is one of my own wishes." But realistically that will take time, he said, adding that "we have to build the credibility of the international standards" and overcome residual suspicions that the object is somehow to weaken U.S. GAAP.

The chairman went on to outline three pillars of good financial reporting:

•  Accounting standards setting out consistent and comprehensive "rules of the game" reasonably reflecting underlying economic reality.
• Accounting and auditing practices able to translate those standards into accurate, understandable, and timely reports by public companies.
• A legislative and regulatory framework capable of providing and maintaining needed discipline.