Buffett Urges Auditor Oversight
The way to help avoid future Enrons is for corporate directors to hold their auditors’ feet to the fire and for stockholders to discipline executives who withhold information, investor Warren E. Buffett said Monday.
Buffett, billionaire chairman of Berkshire Hathaway Inc., headed a list of financial experts at two roundtable discussions hosted by the Securities and Exchange Commission.
SEC Chairman Harvey Pitt, who attended the sessions at New York’s Inter-Continental Hotel, said he would use the panel’s comments to help him develop proposals to improve corporate financial disclosure and auditor independence.
Poor or misleading disclosure and conflicts of interest in auditor Andersen’s relationship with Enron Corp. have been cited as factors in the energy-trading firm’s collapse into bankruptcy.
After the forum, Pitt said he plans to create a private oversight body to discipline accountants and review company audits within six months.
Buffett, however, said such panels rarely are as effective as having an aggressive audit committee within a corporation’s board of directors.
The audit committee, normally composed of independent directors, doesn’t necessarily need to be stacked with accounting experts, he said.
But if they ask tough questions and put the answers on the record in the corporate minutes, it should make the auditors think twice about acquiescing in questionable accounting practices, Buffett said.
James Copeland, chief executive of Big Five accounting firm Deloitte & Touche, warned that hasty reforms could imperil “70 years of steady improvement” in U.S. accounting practices.
He recommended creating an independent governmental or quasi-governmental body that would investigate financial disasters such as Enron the same way that the National Transportation Safety Board investigates airline crashes.
Giving such authority to a single entity would eliminate the duplication and turf battles that now hamper such financial probes, Copeland said.
Melvyn Weiss, a partner at Milberg, Weiss, Bershad, Hynes & Lerach, perhaps the best-known plaintiffs’ representative in shareholder lawsuits against corporations, said the SEC should take a much stronger role in policing accounting and financial disclosure.
The Security and Exchange Commission’s budget should be increased to conduct surprise “spot audits” of big corporations, the same way that the Internal Revenue Service conducts unannounced tax audits, Weiss said. Weiss acknowledged that the idea may be politically unpopular, noting that President Bush is opposed to dramatically increasing the SEC’s budget.
The Security and Exchange Commission will hold a similar panel discussion in Washington on Wednesday, followed by a series of such gatherings around the country, Pitt said.
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Bloomberg News was used in compiling this report.
