The House Financial Services Committee last week approved a bill that would provide the Securities and Exchange Commission (SEC) with expanded authority, create a new public regulatory board to oversee accountants, and require greater corporate disclosures.

The panel voted out the Corporate and Auditing Accountability, Responsibility and Transparency Act (CARTA) by 49 to 12 late Tuesday. The bill, the first major Enron-related reform on the House side, was jointly sponsored by committee Chairman Michael Oxley (R-OH) and Capital Markets Subcommittee Chairman Richard H. Baker (R-LA).

The committee members adopted several amendments to the measure, one giving the SEC authority to bar individuals from serving as officers or directors of public companies. The SEC in the past has had to obtain court approval to take such action. Other amendments would allow the SEC to order corporate officers to relinquish their profits if a company is forced to restate a filing with the agency, and would require auditors to retain their work papers for seven years.

Significantly, the measure would create public regulatory organizations (PROs), which would be made up of non-auditor members who would oversee accountants. A PRO, which would report to the SEC, would certify accountants who audit the financial statements of public companies; could bar an accountant or accounting firm from certifying financial statements; and could punish accountants who violate securities laws, standards of ethics, competency or independence. Moreover, publicly traded companies would have to attest to the good standing of their accounting firms, and have their financial statements certified by a PRO.

In addition to expanding the SEC’s authority, the bill would require the federal agency to conduct regular and thorough reviews of the largest and mostly widely traded companies, and to analyze enforcement actions taken during the past five years to uncover areas that may be open to fraud or manipulation.

In concert with recent announcements of the National Association of Securities Dealers and the New York Stock Exchange to require greater corporate disclosures and to crack down on conflicts of interest on Wall Street, the bill directs the SEC to study any new regulations from either organization, and to report to Congress on the effectiveness of the rules and annually update its reviews.

It also authorizes the agency to conduct studies of the need for additional corporate information disclosures, potential conflicts of interest involving credit rating agencies, and of the sufficiency of corporate governance standards to protect investors.

In a reform directly tied to the Enron scandal, companies would be required to disclose all off-balance sheet transactions to investors; corporate insiders would have to immediately inform the SEC (next business day) and the public (second business day) when they sell their own company stock, rather than waiting up to 40 days, as is currently allowed; and would make it illegal for anyone associated with a company to interfere with the auditing process.

To further protect investors, corporate executives would be barred from buying or selling company stock during periods when employee retirement participants are banned from trading securities.

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