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Dear Chairman Oxley,
As the House Financial Services Committee reaches the point of deciding just how extensive the new controls over accounting firms should be, Citizens for a Sound Economy urges you to look beyond the partisan arguments and consider the impact of the proposed “reforms” on the economy.
Many of the reforms under consideration would effectively ban accounting firms from providing certain consulting services and require corporations to use other non-audit services, such as tax services. For millions of businesses, these proposed restrictions would mandate changes in current business practices, create new costs, and even raise serious questions about the reliability of financial information generated under these new circumstances. Such changes would only shake investor confidence and hinder our continued economic recovery.
The growth of our economy relies on the ability of businesses and investors to make choices based on the best available economic information. Congress should not be placed in the middle of these economic decisions by imposing severe restrictions on the accounting industry. If Congress wishes to “reform” the accounting industry, it should eliminate the annual audit requirement for public corporations. This would force the accounting industry to not only justify its expense, but also develop standards and practices more attuned to investors’ concerns instead of placating their corporate patrons.
Moreover, financial markets have proved to be remarkably adept at regulating financial disclosure. Quarterly earnings statements and annual reports are littered with company-specific one-time asset sales, asset write-downs, loan-loss reserves, and debt consolidation that would be impossible to standardize. When companies abuse the flexibility of the current system to “hide” poor performing investments, the market has punished these companies accordingly. Even behemoths like General Electric are not immune to this scrutiny: its stock price has fallen by nearly 20 percent since its accounting practices were called into question in late March. New regulations would only hinder natural market processes and reward politically favored business structures instead of those investors find to be the most efficient.
President and CEO
Citizens for a Sound Economy
cc: Members of the House Financial Services Committee