PracticeAuditAcademics turn on US financial watchdog

Academics turn on US financial watchdog

US financial watchdog the Securities and Exchange Commission is coming under pressure from academia not to overreact to the crisis in corporate governance.

Link: Government senses compromise on Sarbanes

The SEC, in the process of implementing the controversial Sarbanes-Oxley Act, has been told by leading accountantancy prfessors that the fall in stock prices in the US cannot be entirely blamed on accounting problems.

Kenneth Lehn, professor of Finance at the University of Pittsburgh, and a former economic adviser at the SEC, has warned his old employer to increase the budget for accounting fraud investigations but not ‘overreact’.

He claims the SEC has become too bureaucratic and devotes to little time to enforcement. He advises that the SEC should go through a restructuring to make it more ‘nimble’ in the same way as Washington has ordered reform at the CIA and FBI in the wake of September 11.

He also warns that the Enron and WorldCom should ‘not serve as a catalyst’ to throw away accounting rules that have ‘served us well’.

He writes in a US newspaper: ‘Instead of regulating corporate governance, we should remove regulations that make it difficult for shareholders to discipline inefficient or dishonest corporate executives. Unfortunately, the trend here has been going in the opposite direction, making it harder for shareholders to exert control over executives.’

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