“In a bipartisan rebuke to the scandal-plagued accounting industry, a Senate committee approved legislation creating an oversight board to set bookkeeping standards, limit firms’ consulting work and discipline wayward auditors,” writes Michael Schroeder in today’s Wall Street Journal.

“Coming on the heels of news that the Securities and Exchange Commission plans to impose similar reforms unilaterally, the Senate Banking Committee’s move makes it virtually certain that accountants of publicly traded companies will face new regulatory scrutiny by the end of the year. The accounting industry reacted with dismay, warning that the proposals threatened to place unwieldy restrictions on auditors.”

“This week’s developments add momentum for accounting reform following the collapse of Enron Corp. and the scandal surrounding its auditor, Arthur Andersen LLP, which last week was convicted of obstruction of justice for its role in covering up an investigation into Enron. The drive for an overhaul of the industry seemed to lose steam after public outrage peaked over Enron earlier this year. The House in April passed an industry-backed bill that punted the most difficult decisions about how tough to be to the SEC, which accountants then viewed as friendly turf. But the recent steady drumbeat of additional corporate scandals — including tax-evasion allegations against Tyco International Ltd.’s former chief executive and insider-trading charges against ImClone Systems Inc.’s chief — provided new impetus.”

“SEC Chairman Harvey Pitt had promised to impose his own oversight board on the industry by year’s end, but the accounting industry and its Republican allies in Congress had expected gentler treatment than what he plans to unveil formally Thursday. Details of the SEC proposal were reported Tuesday in The Wall Street Journal. The SEC plan prompted Senate Republicans to cave in to Democratic demands for a tough measure, reviving a bill that had been written off as dead. Senate Majority Leader Tom Daschle, a South Dakota Democrat, promised to bring the bill to a floor vote before Congress adjourns in October, hailing the legislation as ‘the first major contribution to public policy that will allow us more confidence that we will never see another Enron.’

“Until recently, auditors answered to a self-policing entity called the Public Oversight Board, which was funded by the accounting firms. That board, which recently disbanded to make way for a new one, had few weapons in its enforcement arsenal and little ability to impose penalties.”

“Key support for the Democratic bill came from Republican Sen. Michael Enzi of Wyoming. ‘It seems as if every day when I wake up and open the morning paper, there is another correction by a company’ of its financial statements, he said. ‘Worse, there is another corporate executive being criticized for unethical or illegal behavior. That is why Congress needs to act.’ “