U.S. Senator Daniel K. Akaka (D-Hawaii) urged expeditious enactment of S. 2673, the Public Company Accounting and Investor Protection Act of 2002, in a floor statement during Senate debate on the legislation. Senator Akaka, a member of the Senate Committee on Banking, Housing, and Urban Affairs, offered an amendment included in the bill directing the General Accounting Office (GAO) to study the impact of consolidation in the accounting industry on securities markets. Senator Akaka's statement follows:

Thank you, Mr. President. I rise today to express my support for the Public Company Accounting Reform and Investor Protection Act of 2002. I thank Chairman Sarbanes for his leadership and the Banking Committee's staff for their efforts which have resulted in a measure which is fair, realistic, and protects investors. The steady disclosure of accounting scandals and corporate misdeeds underscores the need for legislation to protect investors and to restore public trust in the accounting industry and financial markets. Chairman Sarbanes has been the leading voice for reform. Our Banking Committee held ten hearings on accounting and investor protection issues in February and March. These hearings produced extremely valuable information from which S. 2673 was developed.

Public confidence has been shaken by the incidences of fraud and misrepresentations revealed in the financial statements of companies. Enron, Xerox, and WorldCom are just a few examples of corporations which have misled investors with their financial statements. Since 1997, there have been almost 1,000 restatements of earnings by companies. Investors have suffered substantial financial losses and are unsure of the validity of the audits of public companies. There is a lingering fear that there will be additional revelations of corporate fraud or misrepresentation. This has already harmed investor confidence and could continue to have an adverse impact on the financial markets.

I support this bill because it takes the appropriate steps to help restore public trust in the accounting industry and financial markets. S. 2673 would create an independent Public Accounting Oversight Board to provide effective oversight over those in the accounting industry responsible for auditing public companies. Previous attempts at regulation have been complex and ineffective. As the numerous auditing failures demonstrate, there is a need for an independent Board with authority to adopt and enforce auditing, quality control, ethics, and independence standards for auditors.

The legislation also requires additional corporate governance procedures to make Chief Executive Officers and Chief Financial Officers more directly responsible for the quality of financial reporting made to investors. After the numerous misstatements and corporate abuses that have occurred, this is a necessary step to ensure that corporate executives are held accountable for the financial statements of their companies. A particularly important provision in the bill would require that CEOs and CFOs forfeit bonuses, incentive-based compensation, and profits from stock sales if accounting restatements result from material noncompliance with SEC financial reporting requirements.

Rules to limit and disclose conflicts of interests for stock analysts are included in the legislation. There is a concern that firms pressure their analysts to provide favorable reports on current or potential investment banking clients. This provision would provide protection to those individual investors who often depend on analysts for making investment decisions without being aware of the potential conflicts of interest that the analysts may have with companies whose stock they evaluate.

The Public Company Accounting Reform and Investor Protection Act also authorizes additional appropriations for the Securities and Exchange Commission in order to provide the resources necessary to protect investors. According to the General Accounting Office, approximately 250 positions were vacant last year because the Commission was unable to attract qualified candidates. Additional funding is needed to attract and retain qualified employees. S. 2673 would authorize appropriations of $776 million for the Commission, which is much greater than President Bush's original budget request of $467 million. I am pleased that the President is moving closer to supporting the dollar amount included in the bill.

I also want to thank Chairman Sarbanes for including an amendment in the bill which I have worked closely with the Committee staff in developing. The amendment would require the General Accounting Office (GAO) to conduct a study of the factors that have led to consolidation in the accounting industry and the impact that this has had on the securities markets. Since 1989, the Big 8 accounting firms have narrowed down to the Big 5 and may soon become the Final 4. This study is necessary to evaluate the impact that consolidation has had on quality of audit services, audit costs, auditor independence, or other problems for businesses. In addition, the study is necessary to determine what can be done to increase competition among accounting firms and whether federal or state regulations impede competition.

Mr. President, I am pleased that the Senate has worked in a strong bipartisan fashion to strengthen this bill. Extremely valuable amendments have been added to the original committee bill. In particular, the Leahy and Biden amendments strengthen penalties for corporate fraud. These two amendments will help provide much needed additional protection for investors and retirement plan participants.

I encourage my colleagues to support the Public Accounting Reform and Investor Protection Act of 2002 to restore public trust in the accounting industry and the financial markets. Thank you, Mr. President.