“The Securities and Exchange Commission proposed yesterday setting up an accounting oversight board that could bar accountants from auditing public companies if it found that they had been unethical or incompetent,” writes Jonathan Glater in today’s New York Times.

“The proposal is an effort by Harvey L. Pitt, the chairman of the S.E.C., to seize the initiative as members of Congress and private business groups, driven by a number of accounting scandals that began with Enron last fall and continued through the spring, develop plans to improve financial disclosures and corporate governance. Critics contend that Mr. Pitt has moved too slowly, while supporters argue that he has taken time to develop an appropriate set of regulatory changes.”

“The S.E.C. proposal, which has yet to be fleshed out, would set up a Public Accountability Board, financed by assessments on accounting firms and public companies. Auditors of all publicly held companies would be required to belong to the board. The board would have the authority to bar an accounting firm from membership, power that a previous body, the Public Oversight Board, lacked. The oversight board was dissolved earlier this year. The S.E.C. board would also review audit procedures annually at the largest accounting firms. Under the current system, firms are reviewed every three years by a peer firm.”

“The S.E.C. plan, which agency officials said would be released some time next week for public comment and could take effect as early as November, joins a proposal passed by the Senate Banking Committee earlier this week and one passed by the House in April.”

“The Senate bill would explicitly give its board the power to set standards for how audits are performed, unlike the House and S.E.C. versions. Under all three proposals, the majority of the board would come from outside the accounting profession, but the three differ in how they would finance the board. The Senate bill, generally perceived as requiring the most change, also prohibits individual audit partners from working for the same client for more than five years.”

“In explaining the S.E.C. plan, Mr. Pitt said, ‘We believe everyone recognizes that this model, which sends a loud and clear message that the era of self-regulation of the accounting profession is over, offers a strong framework for rigorous private-sector regulation.’ “