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Learn from Enron, SEC official tells accountants

Hoping to avoid another Enron Corp collapse, the top accountant at the Securities and Exchange Commission urged his accounting colleagues on Thursday to remember Enron's "stunning" fall as they prepare corporate financial statements.

The SEC official also commended the nation's "Big 5" accounting firms, which audit nearly all of the biggest companies on Wall Street, for working together to improve financial disclosure in the wake of criticism about Enron's accounting methods, which have raised credibility questions and spawned investigations and congressional hearings.

"Here is something that I encourage preparers and auditors to think carefully about during this year's upcoming reporting season -- Look carefully at your accounting policies and identify the top three or four or five that require significant judgement," Robert Herdman told an American Institute of Certified Public Accountants conference.

Herdman's comments are noteworthy because they represent a direct reference to Enron's woes by one of the US government's most senior accounting watchdogs.

"Appropriate, transparent disclosure is the most effective way to mitigate the potential for negative surprises and to advance the interests of investors."

The AICPA gathering comes as Enron and its auditor, Arthur Andersen, are under SEC investigation for off-balance sheet transactions that, once they came to light, forced Enron to restate years of earnings and investors watched in horror as the share price plunged.

"Not only is the collapse of Enron in and of itself stunning, but it comes on top of several other widely publicised restatements," said Herdman.

The SEC is looking for a kinder, gentler relationship with the accounting industry after a near divorce last year over a regulatory attempt to limit the lucrative non-audit services that firms were providing to their audit clients.

Part of the reconciliation process involves a three-point plan unveiled by Herdman that included companies, the accounting profession, and regulators working together on accounting issues to "get it right the first time."

"Getting it right after a restatement resulting from a staff review or enforcement action by the commission will still be possible, but it's far less desirable."

Herdman rolled out the regulatory red carpet and encouraged those involved in the process to sit down with the SEC and discuss an anticipated event, a planned transaction or other accounting matter in a process called pre-clearance.

He was struck at how few company requests he has received for face-to-face meetings since becoming the chief accountant in October.

While putting concerns in writing is fine, "a face-to-face meeting can accelerate the understanding and resolution of your accounting issues," said Herdman, who came to the SEC after many years at Ernst & Young.

His plan also calls for modernising the financial reporting and disclosure system, first developed in the 1930s, to allow for more frequent corporate disclosure instead of quarterly and annually.

This has already been championed by SEC Chairman Harvey Pitt and other major accounting firms, including Enron's auditor, Andersen.

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