This article was originally published at GoingConcern.com on May 26, 2010.
What do you get when you mix public pressure, lobbyist money and legislators that think doing anything is better than finally doing the right thing?
Not one provision of either current House or Senate financial regulatory reform legislation touches the accounting industry.
The media has played up the problem of big bad banks, irresponsible ratings agencies and dastardly derivatives. The resultant regulatory reform is, therefore, a goulash of band aids, string, and electrical tape fixing boo-boos, tying together supposed causes to fix perceived effects, and potentially muzzling banks’ ability to manage risk in the future.
Mr. Frank, who is chairman of the House Financial Services Committee, said he would push to insert amendments that would go beyond what he was able to pass in the House, like requiring that margin money be posted on over-the-counter derivatives trades. He was supportive of parts of the Senate bill concerning derivatives, but that there was some “ambiguity in the language…” Earlier on Tuesday, Mr. Frank was quoted as saying the Senate measure to split off derivatives trading desk “goes too far.”
When asked at Compliance Week about issues of interest to the accounting industry Barney Frank disappointed me.
“[He] expects that there will be the small filer exemption from SOX, probably around $70 million. [I disagree with any exemption.]
He expects there will be some proxy access rules, but it sounds like it’s still a point of contention. They will keep “say on pay.” [No binding vote on auditor appointment.]
There was a question slipped in by the moderator about whether or not we’re paying enough attention to the big public accounting firms. Are we afraid to go after them because there are only four of them? (I wonder who wanted that question asked?)
“If the Supreme Court overturns PCAOB, Congress will create a new one with the boundaries dictated by the Supreme Court.” [No detail provided.]”
To the question about fears of going after the accounting firms, Rep. Frank rambled on about McCarthyism, the Inquisition and not spending time looking back – that’s what courts and prosecutors are for, he said. I suspect the industry’s lobbyists and their campaign contributions have whispered in his ear. Employees of KPMG, PwC and Deloitte are among his top 25 contributors in 2009-2010 period. In the 2008 election year, all of the Big 4 made it to Rep. Frank’s top 20 contributors list.
One thing Rep. Frank did mention as remotely possible, raising my hopes, is some variation of the Specter bill to repeal a 2007 Supreme Court decision known as Stoneridge that makes it considerably more difficult to hold third-parties like accounting firms legally culpable for fraudulent schemes. The Specter bill itself is dead, given the Senator’s defeat in a recent primary. However, Senator Ted Kaufman told me yesterday that it’s unlikely we will see anyone take up the issue of repealing Stoneridge at this time.