The Department of Justice June 15 received an early victory against Enron Corp.'s former auditor, Arthur Andersen LLP, in a Houston federal courtroom for a single felony count of obstruction of justice. Yet the US government's role in preventing other corporate financial scandals is still unfolding.
On the judicial front, the attention is expected to turn to Enron itself and allegations of fraud committed by senior management to keep stock prices high. Other, nonenergy companies are also being investigated for stock manipulation and related misdeeds. But soon enough those trials will also be over, leaving industry and policy-makers with the ultimate responsibility for how to win back confidence in publicly traded companies.
In the post-Enron world, the Securities and Exchange Commission has been more aggressive when it looks at company balance sheets, within and outside the energy industry. Congress, meanwhile, appears to be moving beyond its Enron obsession and looking at broader issues.
Stricter standards
Enron's legacy is likely to be stricter accounting standards and more vigorous reporting of financial statements. The House passed a financial disclosure bill (OGJ, May 6, 2002, p. 36). A pending Senate measure is stronger but has not been voted on yet. Senate Banking Committee Chairman Paul Sarbanes (D-Md.) wants to accelerate floor action; he agreed to be more flexible on a provision detailing when accounting firms can offer clients both consulting and auditing services.
Administratively, the SEC said that, with or without Congress's help, it plans to have major accounting reforms in place by December. That is expected to include a "Public Accountability Board" of nongovernment professions empowered to impose harsh fines within or outside the agency enforcement process.
Accounting reaction
Some accounting firms would rather the government let the market reform the system.
"The aftermath of Enron serves as a lens to sharpen our focus on the key elements that underlie this trust in the capital markets," Samuel DiPiazza, CEO of PricewaterhouseCoopers LLP, said at the National Press Club June 17. "You cannot legislate the elements; they're either there or the trust goes away-transparency, accountability, and integrity-the same in our profession, the same in the profession of the media."
Using the oil industry as an example, DiPiazza said regulators should be aware that different accounting methods are needed for specific industries-there is no one-size-fits-all approach. "The dynamic environments of industries mean that some methods apply in one place and not in another. So we foresee a set of metrics applied differently in different industries, but consistently among the companies within those industries.
"Banks, for example, will not evaluate customer satisfaction the same way hospitals do. The standards need to be consistent. We think they can be developed by global industry-based groups (and) trade associations.
"The Society of Petroleum Engineers and the World Petroleum Congress have jointly developed a set of principles around petroleum reserves that everybody reports under. It's a great model," he said.
